Sunoco Inc v. IL Natl Ins Co

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
1-31-2007
Sunoco Inc v. IL Natl Ins Co
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-4992
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
Nos. 05-4992 and 06-1295
____________
SUNOCO, INC.;
SUNOCO, INC. (R&M),
FORMERLY SUN COMPANY INC. (R&M)
v.
ILLINOIS NATIONAL INSURANCE COMPANY,
Appellant
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 04-cv-04087)
District Judges: Honorable Charles R. Weiner
and Honorable John R. Padova
____________
Argued December 13, 2006
Before: FISHER, CHAGARES and GREENBERG, Circuit Judges.
(Filed: January 31, 2007)
Edward P. Krugman
Cahill, Gordon & Reindel
80 Pine Street
New York, NY 10005
Thomas G. Wilkinson, Jr.
Stephen A. Cozen
John J. Dwyer
Cozen & O’Connor
1900 Market Street, 3rd Floor
Philadelphia, PA 19103
Laura A. Foggan (Argued)
Karalee C. Morell
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, DC 20006
Attorneys for Appellant
Peter Buscemi
Morgan, Lewis & Bockius
1111 Pennsylvania Avenue, N.W.
Washington, DC 20004
Richard F. McMenamin
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
David A. Luttinger, Jr. (Argued)
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178
Attorneys for Appellees
____________
OPINION OF THE COURT
____________
FISHER, Circuit Judge.
This case comes to us on appeal from the District Court’s grant of partial summary
judgment and entry of declaratory judgment in favor of Sunoco, Inc. and Sunoco, Inc.
2
(R&M) (hereinafter “Sunoco”), plaintiffs in this case. The District Court determined that
Illinois National Insurance Company (“Illinois National”) had a duty to defend Sunoco
against approximately seventy-seven suits arising from Sunoco’s use of a gasoline
additive. Illinois National appealed. For the reasons set forth below, we will reverse only
so that the District Court may reconsider its decision in light of our holding that one of
the seventy-seven cases presented did not arise from the same occurrence as the other
seventy-six.
I.
Because we write only for the parties, we will set forth only those facts necessary
for our analysis. The factual background of this case is undisputed. Sunoco is part of a
global petrochemical corporation that manufactures and markets petroleum products,
including gasoline. Since the late 1970s, Sunoco, along with numerous other
petrochemical producers, has been using a gasoline enhancer known as methyl tertiary-
butyl ether (“MtBE”), an additive that was originally thought to reduce the amount of
carbon released into the air during the burning of gasoline.
As of the filing of this appeal, Sunoco was a named defendant in seventy-seven
lawsuits asserting claims based on Sunoco’s manufacture and distribution of gasoline
containing MtBE. Sixty of those lawsuits were consolidated into Multi-District Litigation
(“MDL”) 1358. The other seventeen remain pending individually.
3
Prior to the filing of these suits, Sunoco purchased an insurance policy from
Illinois National which covers lawsuits based on damage to persons or property. The
policy imposes on Illinois National a duty to defend against any claims to which the
policy might apply. However, before the policy applies, Sunoco must satisfy two separate
self-insured retentions, which are essentially like deductibles. The language regarding the
self-insured retentions reads:
In consideration of the premium charged, it is agreed that the Limits of
Insurance for each of the coverages provided by this policy will apply [in]
excess of a $250,000 Self-Insured Retention (hereinafter referred to as the
Per Occurrence Retention Amount) and an additional Self Insured
Retention of $5,000,000 (hereinafter referred to a [sic] the Aggregate
Retention Amount.)
The Per Occurrence Amount:
(a) shall apply only to occurrences covered under this policy; and
(b) shall apply separately to each such occurrence arising out of such
occurrence, and
(c) shall include all amounts under the Supplementary Payments section
of the policy.[]
The Aggregate Retention Amount:
(a) shall apply only to occurrences covered under this policy; and
(b) shall apply to amounts which are greater than the Per Occurrence
Retention Amount; and
(c) shall not include any amount within the Per Occurrence Retention
Amount.
In short, Sunoco must meet two spending thresholds before coverage begins. First,
Sunoco must spend $250,000 on each individual occurrence. Then Sunoco must spend an
aggregate amount of $5,000,000 in addition to the $250,000 spent on each individual
occurrence.
4
The contract defines “occurrence” as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” The policy also
includes a pollution exclusion, which excludes from coverage any damage which would
not have occurred but for the discharge of pollutants. However, the policy also contains
an exception to the pollution exclusion. The policy will cover damage caused by the
discharge of a pollutant if the discharge of pollutants caused damage away from premises
owned or rented by Sunoco.
Sunoco filed this suit after Illinois National refused to defend it against the
underlying suits, claiming that Sunoco had failed to meet the self-insured retentions and
that coverage was barred under the pollution exclusion. On a motion for partial summary
judgment on the issue of duty to defend, the District Court found that all seventy-seven
cases constituted a single occurrence. Therefore, Sunoco had met its self-insured
retentions. It also stated that coverage was not excluded on the basis of the pollution
exclusion. This timely appeal followed.
II.
Before we can reach the substance of Illinois National’s appeal, we must satisfy
ourselves that we have jurisdiction. Generally, only final orders are appealable. 28
U.S.C. § 1291. A final and appealable order “is one ‘which terminates the litigation
between the parties on the merits of the case and leaves nothing to be done but to enforce
by execution what has been determined.’” Dotzel v. Ashbridge, 438 F.3d 320, 323 (3d
5
Cir. 2006) (quoting Richerson v. Jones, 551 F.2d 918, 922 (3d Cir. 1977)). As the
District Court’s order only granted partial summary judgment, it is not a final order for
purposes of section 1291.
However, a district court may certify an order that disposes of fewer than all of the
claims in an action pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. Fed.
Home Loan Mortgage Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 440 (3d Cir. 2003).
When ruling on a 54(b) certification, a district court must satisfy itself that two
requirements have been met: first, that the judgment on the particular issue is final and,
second, that there is no just reason for the delay. In reaching that conclusion, the district
court should avoid boilerplate approval and “clearly articulate the reasons and factors
underlying its decision to grant 54(b) certification.” Anthuis v. Colt Indus. Operating
Corp., 971 F.2d 999, 1003 (3d Cir. 1992). However, the statement of reasons is not a
jurisdictional requirement. If the district court’s statement of reasons is lacking, we may
review the record and satisfy ourselves that the 54(b) certification was properly granted.
Carter v. Philadelphia, 181 F.3d 339, 345 (3d Cir. 1999).
The District Court’s explanation and a review of the record satisfies us that it
properly certified its decision under Rule 54(b). Therefore, we exercise jurisdiction
pursuant to section 1291.1
1
The District Court properly applied Pennsylvania law in this diversity action.
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III.
We next address whether the District Court erred in determining that Illinois
National had a duty to defend. When considering whether there is a duty to defend, a
court must first determine the scope of coverage under the policy and then examine the
allegations of the underlying complaints to determine whether those allegations are within
the scope of coverage. Lucker Mfg. v. The Home Ins. Co., 23 F.3d 808, 813 (3d Cir.
1994). “[T]he factual allegations of the underlying complaint against the insured are to
be taken as true and liberally construed in favor of the insured.” Frog Switch & Mfg. Co.
v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999).2
Illinois National only has a duty to defend if Sunoco has met the self-insured
retentions. As previously indicated, the Sunoco policy included a $250,000 per-
occurrence retention and an aggregate $5,000,000 self-insured retention. Sunoco has
agreed that it has not spent more than $250,000 on each of the underlying seventy-seven
lawsuits. Therefore, Illinois National has a duty to defend only if the seventy-seven cases
constitute a single occurrence under the policy.
2
Illinois National argues that the District Court erred when refusing to allow
discovery into the facts underlying the seventy-seven lawsuits filed against Sunoco.
However, in Pennsylvania, a court should look only to the four corners of the complaint
to determine whether an insurer has a duty to defend. Madison Const. Co. v. Harleysville
Mut. Ins. Co., 735 A.2d 100, 109 (Pa. 1999). Therefore, the District Court appropriately
refused to allow discovery into the underlying facts.
7
In order to determine whether there is a single occurrence under Illinois National’s
policy with Sunoco, we must inquire as to whether there is “one proximate, uninterrupted
and continuing cause which resulted in all of the injuries and damage.” Donegal Mut.
Ins. Co. v. Baumhammers, 893 A.2d 797, 813 (Pa. 2006). This “cause test,” which we
originally set forth in Applachian Insurance Co. v. Liberty Mutual Insurance Co., 676
F.2d 56, 61 (3d Cir. 1982), holds that “[a]s long as the injuries stem from one proximate
cause there is a single occurrence.” Id. The number and magnitude of injuries and the
number of plaintiffs do not affect the determination. Id.Courts applying Pennsylvania law in the toxic tort setting have repeatedly found
that the negligent inclusion of a potentially dangerous chemical constitutes a single
occurrence. For example, in Liberty Mutual Insurance Co. v. Treesdale, Inc., we found a
single occurrence that resulted in numerous personal injury claims for asbestos-related
injuries. 418 F.3d 330 (3d Cir. 2005). Treesdale manufactured a product known as
“Soffelex,” which contained asbestos. In the typical case filed against Treesdale, steel
workers who worked in the open hearth of steel mills which produced Soffelex sued after
being exposed to asbestos. The Treesdale policy defined occurrence as “all personal
injury and property damage arising out of continuous or repeated exposure to
substantially the same general conditions.” We found “[t]hat section unambiguously
addresses the situation where, as here, many people allege personal injuries arising from
one occurrence.” Id. at 336. All of the injuries stemmed from a common source – the
8
production and distribution of asbestos-containing products. Id. at 335. Therefore, there
was a single occurrence that caused multiple injuries. See also Union Carbide Corp. v.
Travelers Indemnity Co., 399 F. Supp. 12, 21 (W.D. Pa. 1975) (holding that there was a
single occurrence where a manufacturer was sued by numerous plaintiffs after it included
a resin in its product that produced an intolerable stench, as the cause of the stench was
the inclusion of the resin in the product, not the individual use of the product by the
plaintiffs).
The underlying seventy-seven cases before us are not identical. They allege
contamination in different geographic regions, they resulted from a variety of sources
including gas tank leaks and accidental spills from pipelines, and the plaintiffs vary from
individuals to governmental entities. However, despite these differences, all of the
injuries alleged, save one, arose from a single occurrence. Each of the plaintiffs in the
cases presented in the record allege the same cause of action: injuries resulting from the
hazardous manufacture of gasoline containing MtBE and failure to warn. Just as we
determined in Treesdale, each plaintiff suing Sunoco was exposed to the same general
harmful condition – gasoline containing MtBE – which resulted in contaminated ground
water. Treesdale, 418 F.3d at 336. It is irrelevant how each plaintiff came into contact
with the MtBE as the same alleged negligent act of using MtBE was the proximate cause
of the harm. Union Carbide, 399 F. Supp. at 21.
9
However, the complaint in the case of West Hazelton Hospitality Corp. v. Sunoco,
Inc., does not allege the same products liability and failure to warn claims. The West
Hazelton plaintiffs are suing Sunoco based on the negligent maintenance of a Sunoco gas
station that resulted in contamination of the ground water surrounding their hotel. While
the complaint in that case refers to the inherent dangerousness of MtBE, it is not the
dangerous nature of MtBE that gives rise to the complaint, but a gasoline product that
contaminated the ground water surrounding the hotel. Therefore, we will reverse the
District Court’s decision as to the West Hazelton case and remand to the District Court so
that it might determine if Sunoco has met its self-insured retentions without its
expenditures on West Hazelton.
IV.
As a final effort to sidestep its duty to defend, Illinois National claims that the
cases brought against Sunoco fall under the pollution exclusion and are, therefore, outside
the purview of coverage. Illinois National claims that because the harm occurred due to a
release of pollutants, it need not defend Sunoco. Sunoco has responded by stating that the
exception to the pollution exclusion applies as the damage occurred away from property it
owned or rented.
“Generally speaking, under Pennsylvania law, the issuer of a general liability
insurance policy has a duty to defend its insured when the allegations in the complaint
against it could potentially fall within the coverage of the policy.” Air Prods. &
10
Chemicals, Inc. v. Hartford Accident & Indem. Co., 25 F.3d 177, 179 (3d Cir. 1994). An
insurer must defend if any claim included in the complaint may potentially fall under the
policy and must continue to defend until it can confine the complaint to a claim that has
no possibility of falling under the policy. American States Ins. Co. v. Md. Cas. Co., 628
A.2d 880, 887 (Pa. Super. Ct. 1993). An insurer seeking to avoid its duty to defend based
on a policy exclusion has the burden of proving the applicability of that exclusion. Id.Once the insurer has met that burden, the insured bears the burden of proving the
applicability of an exception to that exclusion. Air Products, 25 F.3d at 180.
As the District Court correctly noted, while some of the complaints allege harm
caused by leaks on Sunoco’s property, none of the complaints allege that the damage
occurred on Sunoco’s property. Therefore, the exception to the exclusion applies and the
plaintiffs in the underlying seventy-seven cases have asserted claims that might fall under
the policy. Until Illinois National defends the suits to such an extent that there is no
longer a claim that may fall into the exception to the exclusion, it must defend Sunoco.
American States Ins. Co., 628 A.2d at 887.
V.
For the reasons set forth above, we agree with the District Court’s decision that the
pollution exclusion does not excuse Illinois National from its duty to defend. However,
we will reverse its decision as the West Hazelton case did not arise from the same
occurrence as the other seventy-six cases. We will remand the case so that the District
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Court may consider whether Sunoco has met its self-insured retentions without the
inclusion of expenses from the West Hazelton case.
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