Robeson Industries Corp. v. Hartford Acc. & Indem. Co.

• Decision Date: 13 May 1999
• Docket Number: Nos. 98-5168,98-5285,s. 98-5168
• Citation: 178 F.3d 160
• Parties: ROBESON INDUSTRIES CORP., Appellant, v. HARTFORD ACCIDENT & INDEMNITY COMPANY; Zurich Insurance Company; Continental Insurance Company. In re: Robeson Industries Corp., Debtor, Robeson Industries Corp., v. Hartford Accident & Indemnity Company; Zurich Insurance Company; Continental Insurance Company.
• Court: U.S. Court of Appeals — Third Circuit

178 F.3d 160

ROBESON INDUSTRIES CORP., Appellant, v. HARTFORD ACCIDENT & INDEMNITY COMPANY; Zurich Insurance Company; Continental Insurance Company In re: Robeson Industries Corp., Debtor Robeson Industries Corp v. Hartford Accident & Indemnity Company; Zurich Insurance

Company; Continental Insurance Company.

Nos. 98-5168, 98-5285.

United States Court of Appeals Third Circuit.

Argued Feb. 17, 1999.

Decided May 13, 1999.

Eugene R. Anderson (argued), Michael R. Magaril, Steven J. Pudell, Anderson Kill & Olick, P.C., Newark, NJ, for Appellants.

Lon A. Berk (argued), Sandra Tvarian, Wiley Rein & Fielding, Washington, DC; Gerald A. Hughes, Hughes & Hendrix, West Trenton, NJ, for Appellee Zurich Insurance Company.

James W. Greene (argued), Thompson, O'Donnell, Markham, Norton & Hannon, Washington, DC; Paul J. Russoniello, Flaster, Greenberg, Wallenstein, Roderick, Spirgel, Zuckerman, Skinner & Kirchner, Cherry Hill, NJ, for Appellees Continental Casualty Company and American Casualty Company of Reading.

BEFORE: GREENBERG, ROTH, and LOURIE, ^* Circuit Judges.

OPINION OF THE COURT

LOURIE, Circuit Judge.

Robeson Industries Corp. appeals from the decision of the United States District Court for the District of New Jersey affirming the bankruptcy court's grant of summary judgment that Robeson was not entitled to coverage under its insurance policies and could not prevail in its tort claims against the insurers. Robeson also appeals from the decision of the district court denying jurisdiction to review the bankruptcy court's imposition of sanctions under Bankruptcy Rule 9011. See Robeson Indus. Corp. v. Zurich Ins. Co., Civ. No. 97-5158(GEB) (D.N.J. Feb. 20, 1998) (summary judgment); (D.N.J. June 2, 1998) (sanctions). We affirm.

BACKGROUND

This appeal arises out of an adversary proceeding commenced by debtor Robeson in the United States Bankruptcy Court for the District of New Jersey. In that proceeding, Robeson contended that Hartford Accident and Indemnity Co., Zurich Insurance Co., and Continental Insurance Co. (the "Insurers") had a duty to defend and indemnify it against claims arising from the discharge of certain contaminants at its manufacturing facility in Castile, New York, including a claim brought by the New York State Department of Environmental Conservation in 1990. ¹ Robeson had purchased various commercial general liability insurance policies from the Insurers that provided coverage from 1976 to 1983. The policies were negotiated in New York and were issued to Robeson at its headquarters in Mineola, New York. Although the policies were apparently not identical as to the property covered, see Robeson Indus. Corp. v. Zurich Ins. Co., Bankr.No. 93-33265(KCF), at 4 (Bankr.D.N.J. Jan. 24, 1997) (memorandum opinion), they all pertained generally to Robeson's New York property, including the Castile facility. None of the policies contained a choice-of-law provision.

The policies contained two provisions relevant to the present controversy. The first provision obligated Robeson to give prompt notice to the Insurers of any occurrence or third-party claim covered by the policies (the "late notice" provision). ² The parties do not dispute that the states of New York and New Jersey differ in their interpretation of the "late notice" provision. Under New York law, an insured's breach of the timely notice provision relieves the insurer of its duty to defend or indemnify, even absent a showing of prejudice to the insured. See Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 584 N.Y.S.2d 290, 594 N.E.2d 571, 573 (N.Y.1992). In contrast, under New Jersey law, an insurer must first establish prejudice before untimely notice relieves the insurer of its duties under the policy. See Cooper v. Government Employees Ins. Co., 51 N.J. 86, 237 A.2d 870, 874 (N.J.1968).

The second policy provision generally excludes coverage for environmental contamination, except for contamination that was "sudden and accidental" (the "pollution exclusion" exception). Although Robeson argued to the bankruptcy court that no conflict of law existed between New York and New Jersey on the interpretation of the "pollution exclusion" exception, the court disagreed, noting that New Jersey interprets the "sudden and accidental" language to cover gradual discharges, see Morton Int'l, Inc. v. General Accident Ins. Co., 134 N.J. 1, 629 A.2d 831, 870-75 (N.J.1993), whereas New York interprets this language as covering only abrupt discharges, see Powers Chemco, Inc. v. Federal Ins. Co., 74 N.Y.2d 910, 549 N.Y.S.2d 650, 548 N.E.2d 1301, 1302 (N.Y.1989). See also Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 712 A.2d 634, 640-41, 643-44 (N.J.1998) (summarizing the differences between New York's and New Jersey's interpretations of the "late notice" provision and the "pollution exclusion" exception).

The interpretations to be given to the "late notice" provision and the "pollution exclusion" exception are outcome-determinative in this case. Robeson did not timely notify the Insurers of their potential liability under the policies until December 1992, two-and-a-half years after the State of New York filed its claim against Robeson and several years after the contamination began. Moreover, Robeson's contamination was gradual, ostensibly occurring over several years. Robeson thus contended in the Bankruptcy court that New Jersey law applied to the interpretation of the policies. Robeson's main argument in support of its contention was that it had moved its headquarters to South Plainfield, New Jersey in April 1991. ³ Robeson further argued, in an attempt to show its close ties to New Jersey, that it had been using warehousing facilities in New Jersey for approximately the last twenty years, paid New Jersey taxes thereon, and had continually maintained management personnel and sales representatives in New Jersey.

The bankruptcy court, applying New Jersey choice-of-law rules, found Robeson's argument in favor of the application of New Jersey law unpersuasive, and held on summary judgment that New York law applied to the interpretation of the policy exclusions. See Robeson Indus. Corp. v. Zurich Ins. Co., Bankr.No. 93-33265(KCF), at 17 (Bankr.D.N.J. Jan. 24, 1997). The court later granted summary judgment of non-coverage to the Insurers. See id. at 2-8 (Bankr. D.N.J. Aug. 27, 1997). The court also clarified that its choice-of-law ruling also applied to Robeson's tort claims against the Insurers--claims stemming largely from the Insurers' alleged bad faith with respect to the denial of coverage. Finding such claims to be unsustainable under New York law, the court granted summary judgment to the Insurers on the tort claims as well. See id. at 8-12. The district court summarily affirmed the bankruptcy court's summary judgment rulings on appeal. See Robeson Indus. Corp. v. Zurich Ins. Co., Civ. No. 97-5158(GEB) (D.N.J. Feb. 20, 1998).

In its summary judgment opinion, the bankruptcy court invited the Insurers to move for sanctions under Bankruptcy Rule 9011 ⁴ because of Robeson's dogged insistence that New Jersey law or policy should apply even in the face of the court's earlier choice-of-law ruling and New York law directly on point. The Insurers accepted this invitation, and, not surprisingly, the bankruptcy court granted the resulting motion, ⁵ awarding the Insurers their litigation expenses for the time period between the court's choice-of-law ruling and its grant of summary judgment.

Robeson appealed the imposition of sanctions to the district court, but the court dismissed the appeal on the ground that it had not been filed within the ten-day time limit prescribed by Bankruptcy Rule 8002(a). The district court noted that the bankruptcy court signed its sanctions order on February 11, 1998, that the order was entered on the clerk's docket on February 23, 1998, and that the ten day period began to run on this latter date. Because Robeson's notice of appeal was filed on March 6, the district court continued, it was one day late and therefore the court lacked jurisdiction. See Robeson Indus. Corp. v. Zurich Ins. Co., Civ. No. 97-5158(GEB) (D.N.J. Jun. 1, 1998) (hearing transcript). Ruling in the alternative, the district court affirmed the decision of the bankruptcy court to impose sanctions on the merits. See id.

Robeson appealed the summary judgment rulings and the sanctions order to this court. We have jurisdiction pursuant to 28 U.S.C. § 1291 (1994).

DISCUSSION

A. Standards of Review

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. See Fed.R.Civ.P. 56(c). This court reviews a district court's grant of summary judgment de novo, reapplying the summary judgment standard. See General Ceramics, Inc. v. Firemen's Fund Ins. Cos., 66 F.3d 647, 651 (3rd Cir.1995). Choice-of-law is a question of law which this court reviews de novo. See id. Whether an appeal from the bankruptcy court to the district court is timely is also a question of law which this court reviews de novo. See Shareholders v. Sound Radio, Inc., 109 F.3d 873, 879 (3rd. Cir.1997). Because we sit in diversity in the present case, we are bound to follow the substantive law of the forum, see Clark v. Modern Group, Ltd., 9 F.3d 321, 326 (3rd Cir.1993), including the forum's choice-of-law rules, see Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

B. Choice-of-Law

The Supreme Court of New Jersey has in several cases set forth New Jersey's choice-of-law rules for the interpretation of casualty insurance contracts. See, e.g., Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 712 A.2d 634 (N.J.1998); HM Holdings, Inc. v. Aetna Cas. & Sur. Co., 154 N.J. 208, 712 A.2d 645 (N.J.1998) (decided concurrently with Pfizer ); Unisys Corp. v. Insurance Co. of N. Am., 154 N.J. 217, 712 A.2d 649 (N.J.1998) (decided concurrently with Pfizer...