Rhone-Poulenc Inc. v. International Ins. Co.

• Decision Date: 17 January 1996
• Docket Number: Nos. 95-1294,95-1525,RHONE-POULENC,s. 95-1294
• Citation: 71 F.3d 1299
• Parties: INCORPORATED, Plaintiff-Appellant, v. INTERNATIONAL INSURANCE COMPANY and International Surplus Lines Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1299

71 F.3d 1299

RHONE-POULENC INCORPORATED, Plaintiff-Appellant, v. INTERNATIONAL INSURANCE COMPANY and International Surplus

Lines Insurance Company, Defendants-Appellees.

Nos. 95-1294, 95-1525.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 22, 1995.

Decided Dec. 11, 1995.

Rehearing Denied Jan. 17, 1996.

Eugene A. Schoon, Gerald L. Angst, Mary H. Lindsay, Sidley & Austin, Chicago, IL, Marc S. Mayerson (argued), Thomas W. Mitchell, Herbert Dym, Sonya D. Winner, Covington & Burling, Washington, DC, Luke W. Mette, Zeneca, Inc., Environmental Law Dept., Wilmington, DE, for plaintiff-appellant.

Aaron J. Kramer, Joseph R. Lundy, Jill B. Berkeley, Schiff, Hardin & Waite, Chicago, IL, Sandra Young, Howard J. Fishman, Purcell & Wardrope, Chicago, IL, Karl D. Belgum (argued), Gary L. Fontana, Christine C. Franklin, Thelen, Marrin, Johnson & Bridges, Los Angeles, CA, for defendants-appellees.

Before POSNER, Chief Judge, and COFFEY and FLAUM, Circuit Judges.

POSNER, Chief Judge.

The appeal from the dismissal of this diversity breach of contract suit presents an interesting and, we suspect, important question, nominally of Illinois law, concerning the characterization of an insurance policy as "primary" or "excess." A policy is primary if the insured has a right to collect the proceeds in the event of a loss regardless of what other insurance he may have. It is excess if his right is contingent on his having exhausted the limits of his other insurance. There are also hybrid primary/excess policies, which the insurance company calls "excess by coincidence" policies and which it argues the policies at issue in this case are. There may be other types of hybrid primary/excess policies as well, see Michael M. Marick, "Excess Insurance: An Overview of General Principles and Current Issues," 24 Tort & Ins.L.J. 715, 717-19 (1989), but we won't have to worry about them in this case.

The background of the dispute can be sketched briefly. By passing the "Superfund" statute in 1980 Congress increased the exposure of enterprises to monetary liability for damage to the environment from toxic spills. Rhone-Poulenc (actually a predecessor, but we can omit that detail) was one of those enterprises. Between 1981 and 1984 it bought from International Insurance three identical policies insuring it against "Environmental Impairment Liability." Rhone-Poulenc already had a number of Comprehensive General Liability policies issued by other insurance companies, but there was uncertainty about the extent to which such policies covered liability for damaging the environment. Rhone-Poulenc bought still another policy from an affiliate (and codefendant) of International Insurance; we shall call it the ISLIC policy, after the affiliate's initials. It has significance to this appeal only for the light it may shed on the interpretation of the Environmental Impairment Liability policies.

After incurring heavy clean-up costs at several contaminated sites, Rhone-Poulenc submitted claims to International Insurance for reimbursement pursuant to the three Environmental Impairment Liability policies. These were "claims made" policies, that is, policies that insured against claims made against Rhone-Poulenc, rather than against liability-creating acts committed by it, during the period in which the policies were in force. International Insurance refused to pay Rhone-Poulenc's claims. It took the position that the policies were excess policies and that Rhone-Poulenc had not shown that it had exhausted its other insurance. That refusal precipitated this lawsuit, filed last year and dismissed on the ground that Rhone-Poulenc's Comprehensive General Liability insurers (19 in number!) were indispensable parties that Rhone-Poulenc had failed to join as defendants and could not join, because to do so would destroy complete diversity of citizenship and with it federal jurisdiction over this suit.

If the policies issued by International Insurance are pure primary policies, the district judge's ruling cannot stand. Other primary insurers may be indispensable parties in a suit by an insured against a primary insurer, Evergreen Park Nursing & Convalescent Home, Inc. v. American Equitable Assurance Co., 417 F.2d 1113 (7th Cir.1969), but it depends on the circumstances of the case. Casualty Indemnity Exchange v. Village of Crete, 731 F.2d 457, 461-62 (7th Cir.1984); Schlumberger Industries, Inc. v. National Surety Corp., 36 F.3d 1274, 1286 (4th Cir.1994). Rule 19(b) sets forth a standard, not a rigid rule. The Schlumberger case characterizes our decision in Evergreen as laying down such a rule for suits against a primary insurer, see 36 F.3d at 1286, but we do not read it so. A party is indispensable only if it would be unjust (against "equity and good conscience," in the words of the rule) to allow the litigation to proceed in his absence. It is not always unjust for an insured with several primary insurers not to proceed against all of them. A victim of wrongdoing is not generally required to sue all the wrongdoers. Certainly not in a tort case, where the rule of joint and several liability reigns; and not in a contract case either. In a case of multiple, overlapping coverage the insurers who are not sued will not be bound by determinations made in a suit to which they are not parties, and the insurers who are sued can if they lose seek contribution afterward from the others, Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 1050-51 (D.C.Cir.1981), though this may depend, as we shall see, on the precise wording of each insurance contract. If all the policies here are primary the case would have to be remanded to allow the district judge to make a fresh determination whether any of the 19 primary insurers who were not sued are indispensable parties. There would be no presumption that they are.

But if the policies that International Insurance issued to Rhone-Poulenc are excess, the ruling dismissing the suit for failing to join indispensable parties was well within the scope of the district judge's authority in applying the standard of Rule 19(b). If those policies are excess, it would mean that International Insurance's liability is contingent on the liability of the Comprehensive General Liability insurers to Rhone-Poulenc, a liability that cannot be determined in the absence of those insurers. On this ground it has been held in the only cases that we have found on the issue, none of them appellate cases, that a suit against an excess insurer cannot proceed in the absence of the primary insurers until the latter have acknowledged their liability to the insured or have been determined by a court to be liable to him. Witco Corp. v. Travelers Indemnity Co., 1994 WL 706076, at * 4 (D.N.J. April 7, 1994); Shell Oil Co. v. Aetna Casualty & Surety Co., 158 F.R.D. 395, 400-01 (N.D.Ill.1994); City of Littleton v. Commercial Union Assurance Cos., 133 F.R.D. 159, 162-63 (D.Colo.1990). A more direct route to the conclusion that Rhone-Poulenc's suit against International Insurance was correctly dismissed if International Insurance's policies were excess, a route independent of Rule 19, is that the excess insurer's duty to indemnify does not attach until the insured has tried and failed to collect under his primary policies. Until then, the suit against the excess insurer is premature.

The determining question in this appeal is, therefore, the classification of the Environmental Impairment Liability policies as primary or excess. Each of the policies is for one year (twelve and a half months in the case of the first policy) and provides maximum coverage of $20 million for one claim, and $40 million for all claims, made against the insured while the insurance is in force, subject to a $2 million dollar deductible. The annual premium differs slightly among the three policies, averaging about $250,000 a year. The policies do not list any underlying insurance; nor is any of them labeled an excess insurance policy. But condition number 8 in each of them states:

This Policy shall not be called upon in contribution and no liability shall attach hereunder for any injury, loss, damage, costs or expenses recoverable under any other insurance whether primary or excess inuring to the benefit of the insured except as regards any excess over and above the amounts collectible under such other insurance; PROVIDED ALWAYS that this clause shall not apply to any policy that is specifically arranged by the insured to cover limits in excess of those stated in this Policy. Nothing herein shall be construed to make this Policy subject to the terms, conditions and limitations of any other insurance.

This is the provision that, according to International Insurance, shows that the Environmental Impairment Liability policies are a form of excess policy if the insured has other coverage.

The policy issued by International Insurance's affiliate, the ISLIC policy, is, on its face anyway, quite different. The first words of the policy are "EXCESS INSURANCE POLICY." Item number 4, on the first page, is captioned "Underlying Insurance" and lists $20 million for one claim and $40 million in the aggregate "as per International Insurance Company policy # 560 000 039, forms on file with the company." The reference is to one of the Environmental Impairment Liability policies that International Insurance had issued to Rhone-Poulenc. The limits of the ISLIC policy are $10 million for one claim and $20 million in the aggregate, and the annual premium is $24,472. A subsequent amendment raised the policy limit to $20 million for one claim, for an additional premium of $2,336. As with each of the Environmental Impairment Liability policies, the term is approximately one year. Condition 8 in those policies does not appear in the ISLIC policy. Instead there are several provisions explaining in rather excruciating detail that the insurer has no obligation until the insured...