Sunbeam Corp. v. Liberty Mut. Ins. Co.

• Decision Date: 19 October 2001
• Citation: 566 Pa. 494,781 A.2d 1189
• Parties: SUNBEAM CORPORATION, Montey Corporation, Temrac Company, Inc., Sunbeam Products, Inc., Chemetron Investments, Inc., Allegheny International Canada, Ltd., Eliskim, Inc., and Woodshaft, Inc., Corporations, Appellants v. LIBERTY MUTUAL INSURANCE COMPANY, First State Insurance Company, Lexington Insurance Company, and Pennsylvania Manufacturers Association Insurance Company, Corporations, Appellees.
• Court: Pennsylvania Supreme Court

781 A.2d 1189

566 Pa. 494

SUNBEAM CORPORATION, Montey Corporation, Temrac Company, Inc., Sunbeam Products, Inc., Chemetron Investments, Inc., Allegheny International Canada, Ltd., Eliskim, Inc., and Woodshaft, Inc., Corporations, Appellants v. LIBERTY MUTUAL INSURANCE COMPANY, First State Insurance Company, Lexington Insurance Company, and Pennsylvania Manufacturers Association Insurance Company, Corporations, Appellees.

Supreme Court of Pennsylvania.

Argued March 5, 2001.

Decided October 19, 2001.

Mark A. Grace, Andrew M. Roman, Richard A. Ejzak, Pittsburgh, David F. Binder, Philadelphia, Arthur G. Raynes, Wynnewood, for appellants, Sunbeam Corp. et al.

Michael David Bedrin, Wilkes Barre, Justina M. Wasicek, Harrisburg, for appellant amicus curiae, Dept. of Environmental Protection.

John Alexander MacDonald, Philadelphia, Paul W. Kissinger, Washington, DC, for appellant amicus curiae, United Policyholders.

Kevin J. Bruno, Newark, NJ, for appellant amicus curiae, Safety Light Corp.

Joseph W. Montgomery, Williamsburg, VA, for appellant amicus curiae, Air Products and Chemicals, Inc.

Justin Kellogg Miller, Peter Frank Marvin, Philadelphia, for appellant amicus curiae, Buckley & Co., Inc.

Lee Marc Epstein, Linda J. Karpel, Philadelphia, for appellant amicus curiae, Betzdearborn, Inc.

John Norig Ellison, Timothy Patrick Law, Philadelphia, for appellant amici curiae, Waste Management, et al.

Lawrence A. Demase, Pittsburgh, for appellant amicus curiae, Dravo Corp.

Thomas More Reiter, Valley Forge, Peter J. Kalis, Pittsburgh, for appellant amici curiae, Aluminum Co. of America, Inc., et al.

Thomas Brennan O'Brien, Joseph Barnett Silverstein, Joseph G. Manta, Philadelphia, for appellee, Liberty Mut. Ins. Co.

Larry A. Silverman, Pittsburgh, Michael J. Cohen, Washington, DC, for appellee Pennsylvania Manufacturers Ass'n.

Steven G. Adams, Joseph Gerard Derespino, Philadelphia, for appellee, First State Ins. Co.

Bernard D. Marcus, Pittsburgh, James P. Davenport, Washington, DC, John M. Burkoff, Pittsburgh, for appellee amici curiae, Underwriters At Lloyd's London and London Market Companies.

Michael Scott Olsan, West Lake Village, CA, Laura A. Foggan, Marilyn Kerst, Washington, DC, Guy A. Cellucci, Philadelphia, Sandra Tvarian Stevens, Washington, DC, for appellee amici curiae, Ins. Environmental Litigation Ass'n and the Alliance of American Insurers.

Jay B. Spievack, Stephen L. Ashcher, New York City, Kevin T. Fogerty, Allentown, for appellee amicus curiae, Tp. of Whitehall.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE and SAYLOR, JJ.

OPINION OF THE COURT

FLAHERTY, Chief Justice.

Appellant manufacturing corporations are insured by appellee insurance companies under comprehensive general liability policies. At issue is the insurers' obligation to indemnify the manufacturers for the costs of cleaning up environmental pollution caused by the manufacturers. The insurance policies cover pollution if it was "sudden and accidental," but not otherwise. The manufacturers maintain that according to the usage in the industry, those words mean "unexpected and unintended." The trial court and Superior Court disagreed, holding that the common meaning of the words "sudden and accidental" is unambiguous and does not cover pollution which occurred gradually over a long period of time whether or not the pollution was unexpected and unintended. The trial court therefore granted the insurers' demurrer and dismissed the complaint with prejudice. Superior Court affirmed.

Appellants have a second claim. They argue that according to principles of regulatory estoppel, a form of judicial estoppel, summary judgment was inappropriate. Their complaint alleged that in 1970 the insurance industry, including the defendant insurers, submitted to the Pennsylvania insurance department a memorandum which asserted that the disputed language—excluding coverage for pollution unless it was "sudden and accidental"—would not result in any significant decrease in coverage. The complaint alleged, moreover, that the insurance department relied on the industry's representation when it approved the disputed language for inclusion in standard comprehensive general liability policies without a reduction in premiums to balance a reduction in coverage. The trial court rejected this claim, stating that "Sunbeam could not reasonably establish that the Department relied on the explanatory memorandum submitted to it by the insurance industry." While the Superior Court majority affirmed this holding, President Judge McEwen dissented on the grounds that in reviewing the dismissal of a complaint based on preliminary objections in the nature of a demurrer, the averments of the complaint must be taken as true. A preliminary objection in the nature of a demurrer should be sustained only in a case that clearly and without a doubt fails to state a claim upon which relief may be granted. The dissenting opinion stated that likelihood of proof is irrelevant; a preliminary objection in the nature of a demurrer must be rejected if the facts as pleaded state a claim for which relief may be granted under any theory of law, citing Willet v. Pennsylvania Medical Catastrophe Loss Fund, 549 Pa. 613, 702 A.2d 850, 853 (1997).

This dissenting view is correct. Whether or not the court regarded proof of the insurance department's reliance on the insurance industry's memorandum as likely or probable, the fact remains that the reliance was properly pleaded. In evaluating a preliminary objection in the nature of a demurrer, properly pleaded facts are deemed to be admitted. County of Allegheny v. Commonwealth, 507 Pa. 360, 490 A.2d 402, 408 (1985).

Furthermore, even without pleading or proving reliance by the insurance department, the allegation of estoppel should not have been dismissed. Judicial estoppel is an equitable, judicially-created doctrine designed to protect the integrity of the courts by preventing litigants from "playing fast and loose" with the judicial system by adopting whatever position suits the moment. Gross v. City of Pittsburgh, 686 A.2d 864, 867 (Pa.Cmwlth.1996). Unlike collateral estoppel or res judicata, it does not depend on relationships between parties, but rather on the relationship of one party to one or more tribunals. In essence, the doctrine prohibits parties from switching legal positions to suit their own ends. Id. Thus, having represented to the insurance department, a regulatory agency, that the new language in the 1970 policies—"sudden and accidental"—did not involve a significant decrease in coverage from the prior language, the insurance industry will not be heard to assert the opposite position when claims are made by the insured policyholders. The United States Court of Appeals for the Third Circuit recently reached the same conclusion in Essex Chemical Corp. v. Hartford Accident and Indemnity Co., No. 00-1839 (March 7, 2001, unreported memorandum opinion) (following New Jersey Supreme Court's application of the doctrine of regulatory estoppel based on insurance industry's identical representations made to New Jersey's insurance commission).

Accordingly, it was error to dismiss the complaint without applying the doctrine of regulatory estoppel and the case will therefore be remanded for further proceedings in the trial court.

Appellants also claim that custom in the industry or usage in the trade supports the argument that the words "sudden and accidental" mean something in the insurance industry which is different from the common meaning of the terms. They argue that invocation of specialized usage in the trade does not depend on any overt ambiguity in the language but, instead, such usage is always admissible to interpret commercial contracts.

In the law of contracts, custom in the industry or usage in the trade is always relevant and admissible in construing commercial contracts and does not depend on any obvious ambiguity in the words of the contract. If words have a special meaning or usage in a particular industry, then members of that industry are presumed to use the words in that special way, whatever the words mean in common usage and regardless of whether there appears to be any ambiguity in the words.

[T]he parol evidence rule does not apply in its ordinary strictness where the existence of a custom or usage to explain the meaning of words in a writing is concerned. Where terms are used in a contract which are known and understood by a particular class of persons in a certain special or peculiar sense, evidence to that effect is admissible for the purpose of applying the instrument to its proper subject matter.... [I]n the absence of an express provision to the contrary, custom or usage, once established, is considered a part of a contract and binding on the parties though not mentioned therein, the presumption being that they knew of and contracted with reference to it.

Resolution Trust Corp. v. Urban Redevelopment Auth'y, 536 Pa. 219, 638 A.2d 972, 975-76 (1994). This is consistent with the Restatement (Second) of Contracts § 202(5), rules in aid of construction, which states: "Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade." Comment d to Restatement (Second) of Contracts § 220 is apropos:

There is no requirement that an ambiguity be shown before usage can be shown, and no prohibition against showing that language or conduct have a different meaning in the light of usage from the meaning they might have apart from the usage. The normal effect of a usage on a written contract is to vary its meaning from the meaning it would otherwise have.

Appellants allege that the words "sudden and accidental" have a peculiar usage in the insurance industry, whether or not the words appear to be ambiguous, that is different from the common usage of...