Simon Wrecking Co., Inc. v. Aiu Ins. Co.

• Court: U.S. District Court — Eastern District of Pennsylvania
• Writing for the Court: Anita B. Brody
• Citation: Simon Wrecking Co., Inc. v. Aiu Ins. Co., 350 F.Supp.2d 624 (E.D. Pa. 2004)
• Decision Date: 29 December 2004
• Docket Number: No. Civ.A. 03-CV-3231.,Civ.A. 03-CV-3231.
• Parties: SIMON WRECKING COMPANY, INC., and Simon Resources, Inc., and Mid-State Trading Company, Plaintiffs, v. AIU INSURANCE COMPANY, et al., Defendants.

350 F.Supp.2d 624

SIMON WRECKING COMPANY, INC., and Simon Resources, Inc., and Mid-State Trading Company, Plaintiffs, v. AIU INSURANCE COMPANY, et al., Defendants.

No. Civ.A. 03-CV-3231.

United States District Court, E.D. Pennsylvania.

December 29, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John N. Ellison, Shruti D. Engstrom, Anderson, Kill & Olick PC, Philadelphia, PA, for Plaintiffs.

John J. Hatzell, Jr., Law Offices of John R. McHaffie, Lawrence P. Engrissei, Law Offices of Lawrence P. Engrissei, Ronald P. Schiller, Piper Rudnick LLP, John C. Sullivan, Post and Schell, P.C., Philadelphia, PA, M. Elizabeth Medaglia, Richard S. Kuhl, Paul D. Smolinsky, Jackson and Campbell, Washington, DC, Jay I. Morstein, Piper & Marbury, LLP, Baltimore, MD, for Defendants.

MEMORANDUM AND ORDER

ANITA B. BRODY, District Judge.

I. INTRODUCTION

Plaintiffs Simon Wrecking Company, Inc., Simon Resources, Inc., and Mid-State Trading Company (collectively referred to as "Simon") bring this suit against their insurers, defendants CNA Insurance Companies ("CNA"),¹ Transportation Insurance Company ("Transportation"), Continental Casualty Company ("Continental"), Liberty Mutual Insurance Company ("Liberty Mutual"), and AIU Insurance Company ("AIU") (collectively referred to as "insurance company defendants"). Simon brings three counts against defendants: (1) breach of contract, (2) declaratory judgment, and (3) bad faith under 42 Pa.C.S. § 8371. (Am.Compl.¶¶ 131-157.)

Currently before me are four summary judgment motions: (1) Liberty Mutual moves for summary judgment on all counts on the basis that they are barred by the statutes of limitations; (2) AIU moves for summary judgment on all counts on the basis that they are barred by the statutes of limitations; (3) CNA moves for summary judgment on the bad faith count on the basis that it is barred by the statute of limitations; and (4) Simon moves for summary judgment on their count of declaratory relief on insurance company defendants' duty to defend.

Jurisdiction is appropriate pursuant to 28 U.S.C. § 1332. When a federal district court exercises diversity jurisdiction, it must apply the substantive law as decided by the highest court of the state whose law governs the action. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). It is undisputed that Pennsylvania law governs the present action.

II. BACKGROUND

A. The Insurance Policies

From approximately October 1, 1974 to November 13, 1979, Simon was insured under certain primary, excess and/or umbrella comprehensive general liability ("CGL") insurance policies sold by CNA.² (Am.Compl.¶ 27.) From approximately November 13, 1979 to December 31, 1983, Simon was insured under CGL policies sold by Liberty Mutual. (Id. ¶ 28.) From approximately December 31, 1983 to December 31, 1985, Simon was insured under CGL policies sold by AIU. (Id. ¶ 29.) For purposes of the instant motions for summary judgment, the material clauses of these insurance policies are those controlling defendants' duty to defend and indemnify Simon and the pollution exclusion clauses.

The CGL policies sold by CNA, Liberty Mutual and AIU contain nearly identical language describing the insurer's duty to defend and indemnify the insured:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... bodily injury or ... property damage to which this policy³ applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient....

(Def. Liberty Mutual's Mot. for Summ. J. Ex. P at LM Simon0000676; Pl.'s Resp. to Def.'s Mot. for Summ. J./Cross-Mot. for Summ. J. Ex. R at AIU000300, Ex. S at SMW00231 (emphasis added).)

The CGL policies sold by CNA, Liberty Mutual and AIU also contain nearly identical pollution exclusion clauses:

This policy⁴ does not apply ... (f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental....

(Id. (emphasis added).)

B. Chronology

In November 1996, Simon received a Potentially Responsible Party Letter ("PRP letter") from the United States Environmental Protection Agency ("EPA"). (Stipulation ¶ 1.) The PRP letter notified Simon that it "may incur, or may have incurred, liability" under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9607(a), in connection with the Malvern TCE Superfund Site. (Stipulation Ex. D at SMW01272.) The Malvern Site, located in East Whiteland Township, Pennsylvania, was owned and operated by Chemclene Chemicals ("Chemclene"). (Id. at SMW01279.) Chemclene distilled and recycled used industrial cleaning solvents, including trichloroethylene (TCE), at the Malvern Site. (Id.) Drums containing residual sludge from the solvent recovery process were buried at the Malvern Site. (Id. at SMW01279, 1236.) Groundwater contamination associated with the Malvern Site was first identified in 1980 in residential wells. (Id. at SMW01279.) The Malvern Site was also associated with soil contamination. (Id.) The materials attached to the PRP letter included records indicating that Chemclene removed drums of used industrial cleaning solvents for Simon. (Id. at SMW01343-81.) The PRP letter to Simon stated: "By this letter, EPA notifies you of your potential liability with regard to this matter and encourages you to perform or to finance voluntarily those response activities that EPA determines to be necessary at the Site." (Id. at SMW01273.)

By letters dated February 12, 1997, Simon notified defendants AIU, Liberty Mutual, and CNA of Simon's receipt of the PRP letter and Simon's potential liability at the Malvern Site. (Stipulation ¶¶ 1-3.) Each of the February 12, 1997 notification letters stated that it served "as formal notice of receipt" of the PRP letter and "a request for defense and coverage for claims arising from this letter." (Stipulation Ex. A at SMW01113, Ex. B at SMW01158, Ex. C at SMW01137.)

By letter dated October 14, 1997, AIU notified Simon that "coverage is denied based upon the pollution exclusions." (Id. Ex. E at SMW01083.) AIU based its denial on a review of the information provided by Simon and concluded, "The contamination at the Site is due to the continuous, long-term activities of the insured and others. Accordingly, AIU relies on provision (f) [the pollution exclusion] of the above exclusion to deny coverage for this claim." (Id. at SMW01083, 1086.)

By letter dated October 17, 1997, Liberty Mutual denied coverage to Simon for both defense and indemnity. (Stipulation ¶ 6.) Liberty Mutual's denial letter stated:

The pollution exclusion precludes coverage for "property damage" arising from the discharge of pollutants that is not sudden and accidental. Our investigation reveals contamination resulted from day to day operations at this site that occurred gradually over time and was not the result [of] any "sudden and accidental" event. Consequently, Liberty Mutual will not reimburse Simon Wrecking or Simon Resources either with respect to any payment made in settlement of the above claim or in satisfaction of any judgment, or with respect to any defense costs Simon incurs in connection with this claim.

(Stipulation Ex. F at SMW01151.) Liberty Mutual's denial letter also stated:

In addition to the foregoing basis [the pollution exclusion] for denial, we also take this opportunity to alert you to additional policy terms ... which would operate to limit or bar coverage.... No suit has been served on Simon Wrecking or Simon Resources, therefore Liberty Mutual would not have any duty to defend.

(Id.)

In 1999, certain recipients of the Malvern Site PRP letter entered into a consent decree with the EPA and the Pennsylvania Department of Environmental Protection. (Stipulation ¶ 7.) Under this consent decree, the settling, potentially-responsible parties were permitted to file suit against the non-settling, potentially-responsible parties, which included Simon. (Id.)

By letter dated December 20, 2000, CNA reserved their rights and failed to defend or indemnify Simon. (Stipulation ¶ 8.) CNA's letter "request[ed] an update regarding developments... since our last communication." (Id. Ex. H at SMW01128.) The letter requested more information from Simon, notified Simon of "potential bases" for the denial of coverage (including the pollution exclusion clauses), and asked for Simon's cooperation "in providing the information necessary to CNA's analysis of this claim." (Id. at SMW01129.)

By letters dated July 30, 2002, Simon notified defendants AIU, Liberty Mutual, and CNA that the settling potentially responsible parties from the Malvern Site had initiated a lawsuit against Simon, though the complaint had not yet been formally filed. (Stipulation Exs. J, K, L.) In these letters, Simon requested that the insurance companies defend Simon in the underlying lawsuit and reimburse Simon for the legal costs incurred since 1998. (Id.) Simon also requested that defendants'"reservations or coverage decisions be re-examined" in light of the Pennsylvania Supreme Court's decision in Sunbeam Corp. v. Liberty Mutual Ins. Co., 566 Pa. 494, 781 A.2d 1189 (2001). (Id. at SMW01072, 1145, 1125.)

On December 9, 2002, the settling, potentially-responsible parties from the Malvern Site...