Koppers Co. v. Aetna Casualty & Surety Co. , 158 F.3d 170 ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
7-22-1998
Koppers Co Inc v. Aetna Cslty & Surety
Precedential or Non-Precedential:
Docket 97-3432
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"Koppers Co Inc v. Aetna Cslty & Surety" (1998). 1998 Decisions. Paper 167.
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Filed July 22, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-3432
KOPPERS COMPANY, INC.,
Appellant
v.
THE AETNA CASUALTY AND SURETY COMPANY; ZURICH
INSURANCE COMPANY; THE TRAVELERS INDEMNITY
CO.; THE AMERICAN HOME ASSURANCE COMPANY;
COMMERCIAL UNION INSURANCE COMPANY; THE
HOME INSURANCE COMPANY; UNDERWRITERS AT
LLOYD'S OF LONDON
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 85-cv-02136)
Argued, Monday, April 27, 1998
BEFORE: ALITO, RENDELL and GARTH, Circuit Judges
(OPINION FILED AS A NOT-FOR-PUBLICATION
OPINION ON JULY 22, 1998)
Joseph W. Montgomery, III (Argued)
Jones, Day, Reavis & Pogue
500 Grant Street - 31st Floor
Pittsburgh, PA 15219
Attorneys for Appellant
Hershel J. Richman
Jennifer R. Clarke
Fred H. Nemeth
Dechert, Price & Rhoads
1717 Arch Street
4000 Bell Atlantic Tower
Philadelphia, PA 19103
Peter M. Page
Kathleen A. McQueeny
Brian D. Bossert
Blatt, Hammesfahr & Eaton
333 West Wacker Drive, Suite 1900
Chicago, IL 60606
Martin R. Baach
Bruce R. Grace (Argued)
Duane K. Thompson
Baach, Robinson & Lewis
One Thomas Circle, Suite 200
Washington, DC 20005-5803
Attorneys for Appellee,
Underwriters at Lloyd's of London
OPINION OF THE COURT
GARTH, Circuit Judge.
The issue we must decide in this appeal is whether an
excess insurer (here, INA) was an indispensable party
under Rule 19(b) of the Federal Rules of Civil Procedure so
as to cause the dismissal of certain of the Appellant's
claims when INA was not joined in this action against
various other excess insurers. We hold that INA was not an
indispensable party and accordingly that the claims should
not have been dismissed. We therefore reverse.
I.
Appellant Koppers Company, Inc. ("Koppers") appeals the
district court's dismissal of its claims against Appellees,
certain underwriters from Lloyd's of London and certain
2
London market insurance companies (hereinafter, "the
London Insurers"), pertaining to seven (7) insurance
policies that the London Insurers issued to Koppers to
provide coverage for various environmental property
damages that occurred from 1960-65 (hereinafter, "the
1960-65 policies"). The district court dismissed the claims
relating to these policies because Koppers failed to join two
other insurers -- Indemnity Insurance of North America
and Insurance Company of North America (collectively,
"INA") -- as indispensable parties pursuant to Rule 19(b) of
the Federal Rules of Civil Procedure.
II.
As we have set forth the facts of the underlying dispute
in an earlier opinion, see Koppers Co., Inc. v. Aetna Cas. &
Sur. Co., 98 F.3d 1440, 1444 (3d Cir. 1996), we recite only
the facts pertinent to the issues before us here.
Koppers is a large manufacturing company based in
Pittsburgh, Pennsylvania. In the 1980s, federal and state
agencies brought claims against Koppers based on
environmental contamination at approximately 150 plant
and disposal sites. Although Koppers had purchased
insurance from several insurance companies, all of the
insurers initially denied coverage for these claims when
Koppers sought indemnification. Accordingly, in 1985,
Koppers sued its two (2) primary comprehensive insurers
for breach of contract in federal court, based upon diversity
of citizenship.
In 1988, Koppers amended its complaint to sue other
primary insurers and several excess insurers. Excess
insurers -- such as the London Insurers in this case -- are
insurers who contract to provide coverage only when the
amount of the claim is beyond that of a primary insurer. In
amending its complaint, however, Koppers decided not to
sue INA (an excess insurer) because INA is a Pennsylvania
company and joining it to the instant action would have
defeated complete diversity. Thus, instead of suing INA in a
3
federal forum, Koppers initiated suit in Pennsylvania state
court over the same insurance claims.1
In July 1994, the London Insurers filed a Motion to
Dismiss claims pertaining to the 1960-65 policies because
Koppers failed to join INA pursuant to Rule 19 of the
Federal Rules of Civil Procedure. The London Insurers
claimed that the relationship between the coverage that
they provided and the coverage that INA provided
concerning the 1960-65 policies made INA an indispensable
party to the federal suit.
On October 20, 1994, without comment, the district
court granted the London Insurers' Motion to Dismiss.
Koppers filed a Motion for Reconsideration, but the district
court denied that motion on March 24, 1995. As a result,
Koppers brought suit against the London Insurers relating
to the 1960-65 policies by adding them as defendants in
the state court action against INA.
After the initial dismissal of Koppers' claims against the
London Insurers pertaining to the 1960-65 policies, all of
the defendant insurers except for the London Insurers
settled with Koppers before trial. Thus, following the
dismissal and settlement, the only remaining claims in the
case were those against the London Insurers for the period
from the 1940s to 1959 and 1966 to the 1970s. See
Koppers, 98 F.3d at 1444.
In April-May 1995, the district court conducted a trial
over Koppers' claims against the remaining defendants (the
London Insurers) but the court limited the scope of that
trial to policies that provided coverage from late 1953 until
January 1960. The district court further limited the scope
of the trial to only eighteen of the contaminated sites.
Following a three week trial, the jury awarded Koppers $70
million. See id.
_________________________________________________________________
1. During the period in question, Koppers' primary insurance carrier was
Aetna which was liable for $50,000 for each occurrence. As an excess
carrier, INA then became liable for $1,000,000 per occurrence. The
London Insurers thus became liable for amounts in excess of
$1,050,000.
4
On July 20, 1995, pursuant to Rule 54(b), the district
court certified as final for interlocutory appeal the part of
its judgment relating to the claims litigated at the jury trial,
noted above. Although Koppers cross-appealed, it did not
challenge the district court's decision to dismiss the 1960-
65 policy claims against the London Insurers.
On appeal, in reversing the district court's method of
apportioning liability, we commented that
the district court would not need to determine whether
the non-settling pre-1971 policies were triggered
because the London Insurers concede -- against their
interests -- that all of Koppers' policies up to 1971 (the
date from which pollution exclusion clauses have
appeared in all the policies) were triggered.
Id. at 1456. In addition, in a footnote, we suggested that
INA was not a necessary party for a proper adjudication of
the claims involved in this dispute:
We recognize that some of Koppers' insurers are not
part of this action because they are non-diverse with
the plaintiff. Under [Gould Inc. v. Continental Gas, 585
A.2d 16 (Pa. Super. Ct. 1991)], however, these insurers
need not participate in the case in order for the district
court to determine their apportioned shares of liability
for purposes of reducing the judgment against the
London Insurers. See 585 A.2d at 19 (stating that
court need only look at policies' terms and limits). Of
course, any determination that these policies were
triggered would not be binding or preclusive against
the absent insurers in future litigation because they
are not parties here. We note also that the London
Insurers' interests are aligned with those of the absent
insurers: each would like to prove that the absent
insurers' policies were not triggered. For the London
Insurers, such a determination would increase the
settling insurers' shares (thereby decreasing the
London Insurers' liability), and the absent insurers
would naturally like to avoid a determination of liability
in the first place.
Id. n.21.
5
Prompted by our intimation that INA was not an
indispensable party, Koppers moved to reinstate the
dismissed claims pertaining to the 1960-65 policies.
Essentially, then, Koppers requested the district court to
reconsider its earlier decision which had dismissed the
claims pertaining to the 1960-65 policies on the grounds
that INA was an indispensable party. On June 10, 1997,
the district court denied this motion from the bench, ruling:
I think that's the law of the case[.] It could have been
appealed at the time the rest of this case went up and
therefore, I'm going to deny the motion to reinstate any
claims. I'm not going to listen to any arguments, I'm
just going to just deny it.
Tr. June 10, 1997, at 2.
Thereafter, Koppers moved for certification under Rule
54(b). Complying with the requirements set forth in Allis-
Chalmers Corp. v. Philadelphia Elec. Co., 521 F.2d 360 (3d
Cir. 1975), the district court granted that motion on July
15, 1997, and at the same time formally denied Koppers'
Motion to Reinstate the claims that had been dismissed.
III.
As a threshold matter, we must address a motion by the
London Insurers urging this Court to dismiss the instant
appeal for lack of appellate jurisdiction.
The London Insurers contend that the dismissal of the
1960-65 claims ("the dismissal order") becamefinal and
appealable when the district court entered a final judgment
over the litigated claims on July 20, 1995. The London
Insurers claim that the dismissal order merged with the
final judgment at that time. Thus, they argue that Koppers
should have appealed the dismissal order then, and by
failing to do so, Koppers waived its right to appeal that
dismissal at the present time.
Koppers counters that this Court does have appellate
jurisdiction as there was no appealable order concerning
the dismissal of the 1960-65 policies until the district court
certified this issue under Rule 54(b). Koppers points out
that the appeal of the July 20, 1995 judgment concerned
6
different policies than those at issue here as the present
appeal specifically addresses the dismissed claims.
Furthermore, Koppers argues that as there is still no final
judgment over all of the claims in the instant case, the
"merger rule" does not apply.2 We agree.
Rule 54(b) provides:
When more than one claim for relief is presented in an
action, whether as a claim, counterclaim, cross-claim,
or third-party claim, or when multiple parties are
involved, the court may direct the entry of a final
judgment as to one or more but fewer than all of the
claims or parties only upon an express determination
that there is no just reason for delay and upon an
express direction for the entry of judgment. In the
absence of such determination and direction, any order
or other form of decision, however designated, which
adjudicates fewer than all the claims or the rights and
liabilities of fewer than all the parties shall not
terminate the action as to any of the claims or parties,
and the order or other form of decision is subject to
revision at any time before the entry of judgment
adjudicating all the claims and the rights and liabilities
of all the parties.
Fed. R. Civ. P. 54(b) (emphasis added). As the Rule 54(b)
certification pertaining to the July 20, 1995 order did not
encompass the claims involving the 1960-65 policies, the
Rule 54(b) certification did not -- indeed, could not --
implicate those claims.3 Contrary to what the London
Insurers argue, there was no final order from which
Koppers could have appealed. Thus, Koppers did not waive
its right to appeal this issue.
_________________________________________________________________
2. Under the "merger rule," prior interlocutory orders merge with the
final judgment in a case, and the interlocutory orders (to the extent that
they affect the final judgment) may be reviewed on appeal from the final
order. See In re Westinghouse Sec. Litig., 90 F.3d 696, 706 (3d Cir.
1996).
3. The July 20, 1995 order concerned only eighteen (18) sites and
insurance policies providing coverage from 1953-60. See Order July 20,
1995 at 2-4.
7
The London Insurers have not brought to the Court's
attention nor have we found any cases that have held that
a district court could not enter a Rule 54(b) certification
under delayed circumstances such as those present in this
matter. Accordingly, we conclude that this Court has
appellate jurisdiction over the instant matter.4
Accordingly, we now address the merits of the dispute at
hand -- whether, in fact, INA was an indispensable party
under Rule 19(b) of the Federal Rules of Civil Procedure.5
We exercise plenary review over a district court's
determination that a party's joinder is necessary under
Rule 19(a). See Janney Montgomery Scott, Inc. v. Shepard
Niles, Inc., 11 F.3d 399, 404 (3d Cir. 1993). We review a
district court's ruling that a party is indispensable under
Rule 19(b), however, for abuse of discretion. See id. at 403.
IV.
The London Insurers contend that INA is a necessary
(and indispensable) party and thus that the district court
properly dismissed the claims pertaining to the 1960-65
policies. The London Insurers claim that they cannot be
held liable to pay on their excess policies unless and until
_________________________________________________________________
4. Along the same lines, the London Insurers also argue that because
Koppers failed to appeal the district court's dismissal of the claims
pertaining to the 1960-65 policies, Koppers did not preserve this issue
and the district court's dismissal became the law of the case. This
argument fails for the very reasons that we conclude that this Court has
appellate jurisdiction. As the initial Rule 54(b) certification did not
encompass the dismissal of the claims pertaining to the 1960-65 policies,
Koppers could not have raised this issue in the prior appeal. Cf. United
States v. U.S. Smelting Co., 339 U.S. 186, 198-99 (1950) (holding that
the law of the case did not bar appeal despite party's failure to raise
issue in a prior interlocutory appeal, although party could have raised
issue in that prior appeal). Moreover, the district court's reference to
"law
of the case" cannot bind this Court on appeal. See Messenger v.
Anderson, 225 U.S. 436, 444 (1912).
5. In response to the London Insurers' Motion to Dismiss for lack of
appellate jurisdiction, Koppers filed a Motion for Attorneys' Fees and
Costs incurred in opposing that motion in this Court. Koppers has not
furnished us with a basis for granting its motion for fees and costs. We
will therefore deny Koppers' motion.
8
the underlying insurers -- including INA -- have paid or
have been held liable to pay the full amount of their
underlying policies. The London Insurers submit that their
policies are "directly excess to [the INA policies] and
contingent upon their liability under them," Appellee's Br.
at 20, and that payment or liability under the underlying
policies is a condition precedent to any obligations that the
London Insurers might incur. In support, the London
Insurers point to the following passage quoted from the
issued policies:
[L]iability shall attach to the Underwriters only after
the Underlying Umbrella Insurers have paid or have
been held liable to pay the full amount of their
respective ultimate net loss liability . . . .
App. 343 (Policy No. 60/473/3 at 1). Thus, the London
Insurers maintain that the district court could not impose
liability upon them without INA being a party to the
litigation at hand. The London Insurers rely upon City of
Littleton v. Commercial Union Assurance Company, 133
F.R.D. 159 (D. Colo. 1990) (holding that absent primary
insurers were indispensable parties when defendant excess
insurers' policies were dependent upon whether the
primary insurers' policies provided coverage), in support of
their argument that underlying insurers are indispensable
parties in cases involving excess insurers.
In response, Koppers asserts that the district court erred
in determining that INA was an indispensable party under
Rule 19(b) because INA is not, in fact, a necessary party
under Rule 19(a). See Janney Montgomery Scott, Inc. v.
Shepard Niles, Inc., 11 F.3d 399, 405 (3d Cir. 1993) (stating
that a court's determination that a party is necessary is a
"necessary predicate" to its determination that a party is
indispensable). Contrary to the London Insurers' position,
Koppers claims that the London Insurers' policies are not
contingent upon nor dependent upon INA's obligations
under its insurance policies, as the London Insurers'
policies do not incorporate the terms of INA's policies and
do not make the London Insurers' obligations to pay
contingent upon whether INA pays its claims. Indeed,
Koppers argues that the plain language of the policies
establishes that the London Insurers' liability is
9
independent from any liability incurred by INA. To the
extent that the London Insurers assert otherwise, Koppers
submits that the London Insurers improperly rely upon
cover notes rather than provisions in actual policies.6
Koppers also claims that INA's policy is not an
"Underlying Umbrella Policy" and is not identified as such,
so that the London Insurers' obligations are not dependent
upon nor contingent upon INA's policy being paid. Rather,
Koppers argues that the London Insurers' policies provide
coverage only in excess of what is provided by INA's
policies. As a result, Koppers contends that INA is not a
necessary nor an indispensable party to the instant
dispute, as the London Insurers' obligations can be
determined fairly and properly without INA being a party.
Indeed, Koppers points to this Court's earlier observation
that the district court could determine the scope of the
London Insurers' liability without INA being a party to the
instant litigation. See Koppers, 98 F.3d at 1456 n.21.
Accordingly, Koppers argues that complete relief can be
granted in INA's absence, INA will not be prejudiced by the
adjudication of the present matter, and that the London
Insurers run no risk of incurring multiple or inconsistent
obligations as a result of INA's absence.
Subsection (a) of Rule 197 addresses the issue of whether
_________________________________________________________________
6. Cover notes are documents that a broker issues to an insured to
notify the insured that an insurance policy has been obtained as is in
effect. See Decl. Michael Jackson at 3 (P 6). As the cover note is not
issued by the insurers but rather by an insurance broker, "insurers in
the London Market typically do not recognize a cover note as binding
upon them." Id.
7. Rule 19 governs the joinder of parties. It provides:
(a) Persons to be Joined if Feasible. A person who is subject to
service of process and whose joinder will not deprive the court of
jurisdiction over the subject matter of the action shall be joined
as
a party in the action if (1) in the person's absence complete
relief
cannot be accorded among those already parties, or (2) the person
claims an interest relating to the subject of the action and is so
situated that the disposition of the action in the person's absence
may (i) as a practical matter impair or impede the person's ability
to
protect that interest or (ii) leave any of the persons already
parties
10
a party should be joined as a "necessary" party. See
Janney, 11 F.3d at 404. Subsection (b) concerns the issue
of whether a party is an "indispensable" party. In reviewing
a district court's determination pursuant to Rule 19, we
must first determine whether a party is a necessary party
to the dispute. See id. If the party is determined to be a
necessary party but cannot be joined because such joinder
would defeat diversity, it must then be determined whether
the absent party is an indispensable party. See id.
Rule 19(a) states that a party is necessary if either (1) the
present parties will be denied complete relief in the absence
of the party to be joined, or (2) the absent party will suffer
some loss or be put at risk of suffering such a loss if not
joined. As Rule 19(a) is stated in the disjunctive, if either
subsection is satisfied, the absent party is a necessary
party that should be joined if possible. Under Rule 19(a)(1),
we first address whether the parties can be afforded
complete relief in the absence of the non-joined party. We
hold that they can.
_________________________________________________________________
subject to a substantial risk of incurring double, multiple, or
otherwise inconsistent obligations by reason of the claimed
interest.
If the person has not been so joined, the court shall order that
the
person be made a party. If the person should join as a plaintiff
but
refuses to do so, the person may be made a defendant, or, in a
proper case, an involuntary plaintiff. If the joined party objects
to
venue and joinder of that party would render the venue of the
action
improper, that party shall be dismissed from the action.
(b) Determination by Court Whenever Joinder not Feasible. If a
person as described in subdivision (a)(1)-(2) hereof cannot be made
a party, the court shall determine whether in equity and good
conscience the action should proceed among the parties before it,
or
should be dismissed, the absent person being thus regarded as
indispensable. The factors to be considered by the court include:
first, to what extent a judgment rendered in the person's absence
might be prejudicial to the person or those already parties;
second,
the extent to which, by protective provisions in the judgment, by
the
shaping of relief, or other measures, the prejudice can be lessened
or avoided; third, whether a judgment rendered in the person's
absence will be adequate; fourth, whether the plaintiff will have
an
adequate remedy if the action is dismissed for nonjoinder.
Fed. R. Civ. P. 19 (West 1998).
11
In order to determine whether the parties can be afforded
complete relief in the absence of INA, we turn to the
contract provisions which governed the 1960-65 policies.
Policy No. 60/473/2 is the "Umbrella Policy" upon which all
of the disputed policies at issue rely to define the scope and
the terms of the London Insurers coverage and liability. See
Decl. Michael Jackson at 4-7. Policy No. 60/473/2
explicitly provides:
Nothing herein shall be construed to make this policy
subject to the terms, conditions, and limitations of
other insurance.
App. 275 (Condition L). In addition, Policy No. 60/473/2
states:
It is a condition of this policy that the policy or policies
referred to in the attached "Schedule of Underlying
Insurance" shall be maintained in full effect during the
currency of this policy except for any reduction of the
aggregate limit or limits contained therein solely by
payment of claims in respect of accidents and/or
occurrences occurring during the period of this policy.
Failure of the Assured to comply with the foregoing shall
not invalidate this policy but in the event of such failure,
the Underwriters shall only be liable to the same extent
as they would have been had the Assured complied
with the said condition.
App. 276 (Condition S) (emphasis added). Moreover, the
loss payable clause of Policy No. 60/473/2 reads, in
pertinent part:
Liability under this policy with respect to any
occurrence shall not attach unless and until the
Assured, or the Assured's underlying insurer, shall
have paid the amount of the underlying limits on
account of such occurrence.
App. 274 (Condition J) (emphasis added).
Our reading of the Koppers' policies requires a total of
$1,050,000 to be paid by either Koppers or its underlying
insurance carrier -- in this case Aetna and INA-- before
any liability of the London Insurers is triggered. Our
understanding in this respect is that the London Insurers'
12
excess policy has, in effect, a $1,050,000 deductible
amount before any payment must be made pursuant to the
policy's terms. We thus conclude that insofar as liability
under the London Policies is concerned, complete relief can
be accorded to the parties present to this litigation without
the joinder of INA. Accordingly, we hold that INA is not a
necessary party under Rule 19(a)(1). In addition to the fact
that complete relief is available, INA's ability to protect its
interests will not be impaired or impeded by the disposition
of the action in its absence. See Fed. R. Civ. P. 19(a)(1)(i).
By the same token, under Rule 19(a)(2)(ii), the London
Insurers face no risk of multiple or otherwise inconsistent
obligations as a result of INA's absence from this action.
As we noted above, the Limits of Liability section of Policy
No. 60/473/2 provides that liability does not attach to the
London Insurers unless a claim exceeds at least
$1,050,000. This provision underscores the independence
between any liability that the London Insurers have under
their policies and any liability that may result from INA's
own policy coverage. To the extent that the London Insurers
rely upon the cover notes to "stand as clear evidence of the
fundamental structure" of the insurance coverage provided
by the respective excess insurance policies, such reliance is
misplaced.8 Appellee's Br. at 23. By their own terms, the
cover notes became void when the actual insurance policies
were issued. See App. 37 ("This cover note shall be
automatically terminated and voided by delivery of policy or
certificate of insurance to the Assured.")
As we have concluded that INA is not a necessary party
under Rule 19(a), INA cannot be an indispensable party
under Rule 19(b). See Janney, 11 F.3d at 405. Accordingly,
the district court erred in dismissing Koppers' claims
pertaining to the 1960-65 policies for failure to join INA as
an indispensable party.9
_________________________________________________________________
8. We note that under Pennsylvania law, if the language of an insurance
policy is ambiguous, the ambiguous language is construed against the
drafter. See Board of Pub. Educ. v. National Union Fire Ins. Co., 709 A.2d
910, 1998 WL 111558, at 2 (Pa. Super. Ct. Mar. 16, 1998).
9. We have considered the following issues that the London Insurers
have raised on appeal and have found them to be without merit: the risk
13
V.
In sum, as we conclude that INA is not a necessary and
therefore not an indispensable party to the instant action,
we will reverse the district court's dismissal of Koppers'
claims relating to the 1960-65 policies and remand for
further appropriate proceedings.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
of duplicative litigation over identical issues in both state and federal
fora; reinstating the 1960-65 policy claims weighs against judicial
economy as INA policies would have to be analyzed in both state and
federal courts; the district court cannot grant complete relief because it
has no jurisdiction over INA; this Court should affirm under the doctrine
of Wilton v. Seven Falls, 515 U.S. 277 (1995) (holding that a
discretionary standard governs a district court's decision to stay a
federal declaratory judgment action during the pendency of parallel state
court proceedings).
14