T & N v. Pennsylvania Ins. Guar. Ass'n

Decision Date03 January 1995
Docket NumberNos. 93-2011 and 93-2012,s. 93-2011 and 93-2012
Citation44 F.3d 174
PartiesT & N, plc, Appellant/Cross-Appellee, v. PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION, Appellee/Cross-Appellant.
CourtU.S. Court of Appeals — Third Circuit

Mark F. Rosenberg, Philip L. Graham, Jr. (argued), Tariq Mundiya, Sullivan & Cromwell, New York City, Richard L. Berkman, William R. Spade, Jr., Dechert, Price & Rhoads, Philadelphia, PA, for appellant/cross-appellee.

Lise Luborsky, Joseph M. Hankins (argued), Britt, Hankins, Schaible & Moughan, Philadelphia, PA, for appellee/cross-appellant.

Before: MANSMANN, ALITO and ROSENN, Circuit Judges.

OPINION OF THE COURT

MANSMANN, Circuit Judge.

The Pennsylvania Insurance Guaranty Association ("PIGA") is an association of independent property and casualty insurers within Pennsylvania, created by The Pennsylvania Insurance Guaranty Association Act, 40 Pa.Stat. Sec. 1701.101 et seq. (1970) for the purpose of providing a means of relatively prompt payment of covered claims in the stead of an insolvent insurer. Membership in PIGA is required before an insurer is authorized to write insurance policies within Pennsylvania. A "covered claim" under the Act must be the claim of a Pennsylvania "resident" or must pertain to property permanently located in Pennsylvania.

In this interlocutory appeal arising out of multiple claims seeking multi-millions of dollars in asbestos personal injury damages, T & N, plc, an English corporation with its principal place of business in England, seeks to recover from PIGA over $5 million under the terms of a settlement agreement with the American Mutual Liability Insurance Company. American Mutual is the insolvent insurer of T & N's now dissolved Pennsylvania asbestos manufacturing subsidiary, the Keasbey and Mattison Company. Since Keasbey's dissolution, T & N has been the target of thousands of claims brought by individuals alleging bodily injury and/or property damage caused by Keasbey's asbestos-containing products. Following an action which T & N commenced against American Mutual in the federal district court, T & N and American Mutual negotiated a settlement agreement which bound American Mutual to pay T & N a certain sum under the Keasbey policies. When American Mutual defaulted and was adjudged insolvent, T & N commenced this action against PIGA.

We must decide whether T & N's claim based on the terms of the settlement agreement is deemed to have arisen under American Mutual's property and casualty insurance policy so as to fall within the scope of covered claims under the Act, or whether the agreement served to extinguish the Keasbey policies. We must also decide whether T & N's claim satisfies the residency requirement of the Act, either by virtue of Keasbey's Pennsylvania residency while it was still viable, T & N's alleged alter ego relationship with Keasbey, and/or by T & N's direct Pennsylvania contacts. We must further decide the merits of T & N's assertion that recovery from PIGA is authorized to the extent that the underlying personal injury claimants are Pennsylvania residents. Finally, we must decide whether T & N has a potential claim against PIGA for claims arising from the loss or liability to any property permanently situated in Pennsylvania.

We conclude that the settlement agreement did indeed arise under the insurance policies, and hence may support a covered claim. We also conclude that T & N may have a viable covered claim with respect to affected property, but that it does not otherwise meet the residency requirements of the Act. We hold, however, that because the settlement agreement encompassed all of T & N's claims against the insurance company, T & N has only one potential covered claim which is subject to the $300,000 limit under the Act.

I.

Keasbey and Mattison Company was a Pennsylvania corporation with its principal place of business in Pennsylvania and which manufactured asbestos-containing products from the early 1930's until 1967. Keasbey was the named insured on standard liability polices issued by American Mutual Liability Insurance Company from at least April 1, 1946 through October 1, 1965. The policies provided primary coverage for asbestos and other latent disease product liability claims. In 1962, Keasbey sold its assets and filed for dissolution under Pennsylvania law. The dissolution became final in 1967.

T & N, plc, is a corporation organized under the laws of England and having its principal place of business in England. From 1934 until 1938, T & N owned the majority of Keasbey's stock. From 1938 until Keasbey's dissolution, T & N owned one hundred percent of Keasbey's stock either directly or indirectly.

Beginning in 1978, T & N was sued by thousands of individuals who alleged that since T & N was the sole shareholder of Keasbey, it was liable to them for the bodily injury they had suffered due to their exposure to asbestos. As a result, in 1982 T & N filed a declaratory judgment action against American Mutual in the United States District Court for the District of Columbia, seeking coverage for over 1,000 asbestos claims. With respect to seven selected asbestos cases, the district court entered partial summary judgment in favor of T & N. It found that due to its status as a shareholder of Keasbey, T & N was an additional insured under the policies which were issued to Keasbey. The district court then directed the parties to attempt to reach an agreement regarding the amount of damages T & N was entitled to receive.

Subsequently, T & N and American Mutual entered into a settlement agreement which provided in pertinent part:

2. This Agreement is intended to confer rights and benefits only upon T & N and American Mutual, and is not intended to confer any right or benefit upon any other person. No person other than T & N or American Mutual shall have any legally enforceable right under this Agreement. All rights of action for any breach of this Agreement are hereby reserved to T & N and American Mutual.

5. This Agreement is the entire agreement between T & N and American Mutual. All antecedent or contemporaneous extrinsic representations and warranties made in the negotiation and preparation of this Agreement are intended to be merged in the Agreement and of no further effect.

6. For the purposes of resolving their dispute American Mutual and T & N agree that the limits of liability for all Keasbey policies shall be a total of _____. 1

7. American Mutual shall pay to T & N the aforesaid limits of all Keasbey policies ... as well as a portion of T & N's defense costs....

8. Upon execution of this Agreement, American Mutual shall be considered to have no further duties or obligations based upon, arising out of or related to any policy of insurance issued to Keasbey by American Mutual and all such policies shall be considered exhausted, null and void and of no further force or effect. (District Court Opinion dated May 28, 1992, pp. 3-4)

T & N alleges that American Mutual defaulted on this agreement because it failed to pay installments which were due on January 3, 1989 and January 4, 1990. In an unrelated matter, on March 9, 1989, the Massachusetts Supreme Judicial Court found that American Mutual was insolvent, appointed a permanent receiver, and ordered that the company be liquidated.

On July 30, 1990, T & N filed a complaint in the United States District Court for the Eastern District of Pennsylvania, seeking damages from PIGA under the Pennsylvania Insurance Guaranty Act because the Association failed to assume American Mutual's payment obligations under the settlement agreement 2 and under the terms of the actual insurance policies which were issued to Keasbey. 3

It is undisputed that the Pennsylvania Insurance Guaranty Association Act and the Association were established in response to the social harms which result from insurance insolvencies. Sands v. Pennsylvania Insurance Guaranty Association, 283 Pa.Super. 217, 423 A.2d 1224 (1980). Every property and casualty insurance carrier in Pennsylvania is a member of PIGA. Indeed, membership in PIGA is a condition of an insurer's ability to write insurance policies in Pennsylvania. One of the purposes of the Act is to:

(1) Provide a means for the payment of covered claims under certain property and casualty insurance policies, to avoid excessive delay in the payment of such claims, and to avoid financial loss to claimants or policyholders as a result of the insolvency of an insurer.... 40 Pa.Stat Sec. 1701.102.

By order entered May 29, 1992, the district court found that the settlement agreement is a matter which "arises under" the insurance policies issued by American Mutual as that phrase is utilized in section 1701.103(5)(a) of the Act. The court denied summary judgment with respect to the other aspects of Count I without prejudice to renewal after the completion of discovery. Summary judgment was granted in favor of PIGA with respect to T & N's claims which were based on the insurance policies because the settlement agreement nullified the policies. PIGA's motion for summary judgment on the bad faith claim was also denied without prejudice to renewal after the completion of discovery.

After discovery was completed, each party filed a motion for summary judgment. By opinion and order entered May 27, 1993, the district court held in pertinent part that while T & N was not a resident of Pennsylvania and that Keasbey's residence was irrelevant, T & N could rely on the residency of its underlying claimants and the right of those claimants to bring a claim against T & N to meet the residency requirement of the Act. However, PIGA would only be liable if the underlying claimants were Pennsylvania residents at the time of the insured event 4 or if the claims were for losses to property which was permanently located in Pennsylvania and the claims would have been covered by a Keasbey policy....

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