Memorandum Opinion on Cross-Motions for Judgment on the Pleadings (docs. 21, 22 and 24)
ARTHUR J. SCHWAB, District Judge.
This is a declaratory judgment action
Judging from the four corners of the Second Amended Complaint in the Tait litigation,
Accordingly, this Court will GRANT the Insureds' Motions for Judgment on the Pleadings (docs. 21 and 22), and DENY the Insurers' Motion for Judgment on the Pleadings (
Standard of Review
The parties have filed Cross-Motions for Judgment on the Pleadings under Federal Rule of Civil Procedure 12(c). Under Rule 12(c), judgment will not be granted unless the movant clearly establishes that no material issue of fact remains to be resolved and that he/she is entitled to judgment as a matter of law. Rule 12(b)(6) provides the standard of review applicable to motions for judgment on the pleadings and motions to dismiss. The Court is permitted to consider, in addition to the allegations of the Complaint, "documents that are attached or submitted with the complaint, . . . and any matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the case." Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006).
Thus, in deciding a motion filed in accordance with Rule 12(c), a Court must accept the factual allegations as true and draw all reasonable inferences presented in the pleadings in the light most favorable to the plaintiff. Erickson v. Pardus, 554 U.S. 89, 93-94 (2007); Lum v. Bank of America, 361 F.3d 217, 223 (3d Cir. 2004). If the facts alleged by the plaintiff are sufficient to "raise a right to relief above the speculative level," such that the plaintiff's claim is "plausible on its face," a complaint will survive a motion to dismiss, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007), or a motion for judgment on the pleadings, Turbe v. Gov't of Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991).
Background Facts/Procedural History
Procedural History/Interplay of Facts as Alleged in Tait Litigation and Instant Case
On February 7, 2017, the Tait litigation was instituted before this Court at civil action 17-cv-00182, against BASD and Dr. Lumley, alleging a three (3) count Class Action Complaint sounding in state law negligence (not based upon diversity of citizenship), medical monitoring, and a federal and state constitutional violation of right to bodily integrity (under the Due Process Clause of the Fourteenth Amendment of the United States Constitution, 42 U.S.C. §§ 1983 and 1988, and Article I, § 1 of the Constitution of the Commonwealth of Pennsylvania). BASD tendered the defense of the Tait litigation to the Insurers (through Liberty Mutual Insurance) on or about February 8, 2017.
By letters dated February 17, 2017, the Insurers
It is important to note that in each version of the Complaint in the Tait litigation, Plaintiffs have alleged lead and/or copper consumption by the students at the Summit Elementary School within the BASD. The Complaint in the Tait litigation has been amended twice, with consent of the parties (with the exception of the Insurers who are not parties to the Tait litigation), and with leave of court. While the original Complaint in the Tait litigation alleged primarily factual allegations of lead consumption, it also averred copper consumption as well on at least four occasions (see
The First Amended Complaint, filed on April 7, 2017, added many new factual allegations regarding Plaintiffs' copper consumption (see
The Second Amended Complaint added numerous factual allegations regarding lead and/or copper consumption by the students at Summit Elementary School between August 15, 2016 and January 20, 2017.
On March 15, 2017, the Insurers filed the instant lawsuit seeking a declaration from this Court that they have no duty to defend and/or indemnify the Insureds because the Insurance Policies at issue exclude coverage. The Court conducted a Status Conference/Initial Case Management Conference (ICMC) in this case on April 4, 2017, and the ICMC in the Tait litigation on June 5, 2017. Numerous Motions to Dismiss are currently pending in the Tait litigation.
A briefing schedule in the instant lawsuit on the pending Motions was set forth at the April 4, 2017 ICMC; however, following the filing of the Second Amended Complaint in the Tait litigation (doc. 33), Supplemental Briefing was ordered by this Court to be completed by June 2, 2017 in the instant lawsuit.
The Netherlands Policy 8
Netherlands issued a Commercial Package policy to BASD which was in effect from July 1, 2016 to July 1, 2017,
The Netherlands Policy contains an endorsement entitled "EXCLUSION — LEAD LIABILITY," which states, in relevant part, that the insurance does not apply to:
The term "pollutants" is defined in the CGL Coverage Part of the Netherlands Policy as follows:
The Peerless Policy
Peerless issued a Commercial Umbrella insurance policy (the "Peerless Policy") to BASD which was also in effect from July 1, 2016 to July 1, 2017. Doc. 1-5 (Policy No. CU 8117683). The language of the Insuring Agreement of the Peerless Policy is as follows:
The "Defense And Expense of Claims And Suits" provision in the Peerless Policy states, in relevant part, as follows:
The Peerless Policy includes pollution and lead exclusions, which state, in relevant part, that the insurance does not apply to:
Duty to Defend Is Broad
In a determination regarding whether an insurer has a duty to defend, the Court must look "solely to the allegations of the Complaint in the underlying action." Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660, 678 (3d Cir. 2016)(quoting Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006)). If the operative Complaint avers facts which support a recovery covered by the Policy, the coverage is triggered and the insurer has a duty to defend until such time that the claim is confined to recovery that the policy does not cover. Gen'l Acc. Ins. Co. of Am. v. Allen, 692 A.2d 1089, 1095 (Pa. 1997). Keeping in mind that the averments of the operative Complaint must be liberally construed in favor of the insured, USX Corp. v. Adriatic Ins. Co., 99 F.Supp.2d 593, 611 (W.D. Pa. 2000), the Court also notes that the duty to defend is broader than the duty to indemnify. Kvaerner, 908 A.2d at 896.
Under Pennsylvania law, "when an insured tenders multiple claims to an insurer for defense, the insurer is obligated to undertake defense of the entire suit as long as at least one claim is potentially covered by the policy." Post v. St. Paul Travelers Ins. Co., 691 F.3d 500, 517-18 (3d Cir. 2012). It remains true that "policy exclusions are to be construed narrowly in favor of coverage." Mut. Benefit Ins. Co. v. Politsopoulos, 115 A.3d 844, 852 n. 6 (Pa. 2015).
Insurance Policies Are Contracts
The legal principles governing this Court's interpretation of the Policies at issue are well settled. Under Pennsylvania law, the "`interpretation of an insurance contract regarding the existence or non-existence of coverage is generally performed by the Court.'" Gardner v. State Farm Fire and Cas. Co., 544 F.3d 553, 558 (3d Cir. 2008) (citing Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286, 290 (Pa. 2007)).
Since an insurance policy is a contract, the Court's duty is to ascertain the intent of the parties as manifested in the language of the agreement. Eastern Associated Coal Corp. v. Aetna Cas. & Sur. Co., 632 F.2d 1068, 1075 (3d Cir. 1980). A policy must be read as a whole and its meaning construed according to its plain language. Meyer v. CUNA Mut. Ins. Soc., 648 F.3d 154, 163 (3d Cir. 2011).
Whether an ambiguity exists is a question of law. Viera v. Life Ins. Co. of North America, 642 F.3d 407, 419 (3d Cir. 2011). The Court should read policy provisions so as to avoid ambiguities, if the plain language of the contract permits, and should not torture the language of the policy to create an ambiguity. Eastern Associated Coal Corp., 632 F.2d at 1075.
Under Pennsylvania law, an insurance contract is ambiguous where it: "(1) is reasonably susceptible to different constructions, (2) is obscure in meaning through indefiniteness of expression, or (3) has a double meaning." Lawson v. Fortis Ins. Co., 301 F.3d 159, 163 (3d Cir. 2002).
When policy language is clear and unambiguous, the Court is required to enforce that language. Medical Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999)(citing Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)). Importantly, when the policy language is ambiguous, it must be construed against the insurer, and in favor of the insured, and any reasonable interpretation offered by the insured must control. American Auto. Ins. Co. v. Murray, 658 F.3d 311, 321 (3d Cir. 2011).
Under Pennsylvania law, while the insured has the initial burden of establishing coverage, once coverage is established, the insurer must prove an exclusion applies. "Where an insurer relies on a policy exclusion as the basis for its denial of coverage and refusal to defend, the insurer has asserted an affirmative defense and, accordingly, bears the burden of proving such defense." Canal Ins. Co. v. Underwriters at Lloyd's London, 435 F.3d 431, 435 (3d Cir. 2006) (quoting Madison Constr. Co., 735 A.2d at 106). Exclusions are construed strictly against the insurer and in favor of the insured. Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 206-07 (3d Cir. 2001).
The Second Amended Complaint alleges a claim for "bodily injury" caused by an "occurrence" potentially covered by the Netherlands and Peerless Policies. Both Policies define "bodily injury" to include, inter alia, physical injury, sickness, or disease. The Second Amended Complaint specifically alleges, inter alia, physical injury from the direct exposure to and/or ingestion of water that was toxic and that Plaintiffs were injured due to the presence of lead and/or copper.
"Generally, injuries caused by negligence are considered to be the result of `accidents' within the meaning of insurance policies, and correspondingly, negligence claims do not fall within policy exclusions for injuries `expected or intended' by the insured. That is, negligence is generally covered by the insurance policy." Allstate Prop. & Cas. Ins. Co. v. Fischer, 2013 WL 6145248, at *4 (E.D. Pa. Nov. 20, 2013)(citing State Farm Fire & Cas. Co., v. Corry, 324 F.Supp.2d 666, 672 (W.D. Pa. 2004))(allegations made in joinder complaint sounding in both intentional tort and negligence required the insurer defend).
Here, because the Second Amended Complaint in the Tait litigation alleges that the "bodily injury" allegedly sustained by the Tait Plaintiffs was caused by the negligence of the Insureds, the Insureds have met their burden of establishing coverage under the Policy. Therefore, the Insurers now have the burden of establishing the application of Policy exclusion.
Because the Pollution Exclusions Are Ambiguous There Is a Duty to Defend
To summarize, the "pollution" exclusions in the Netherlands Policy and the Peerless Policy only excludes coverage for "bodily injury" if it arises out of "the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of `pollutants.'" (See Compl. at Ex. B.)
Pursuant to the definitions in the CGL Coverage Form in the Netherlands Policy, and the CUL Coverage Form in the Peerless Policy, "pollutants" are defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed."
Both the Netherlands and Peerless policies contain exclusionary language relative to lead that excludes coverage for "Bodily injury . . . arising, in whole or in part, either directly or indirectly out of the mining, processing, manufacture, storage, distribution, sale, installation, removal, disposal, handling, inhalation, ingestion, absorption, use or existence of, exposure to, or contact with lead or lead contained in goods, products or materials; . . ."
Although the Netherlands Policy contains specific exclusions relative to the ingestion of or exposure to lead, importantly, there are no corresponding exclusions for copper. The Pollution Exclusions are ambiguous in the context of an alleged exposure to lead and/or copper in drinking water; and therefore, must be interpreted in favor of coverage.
Although there is no directly applicable factual scenario, both the Supreme Court of Pennsylvania and the Superior Court of Pennsylvania have ruled that standard pollution exclusion language like that contained in the Policies at issue does not apply to a substance such as lead that is a component of a product that degrades over time rendering the substance incrementally bioavailable. These findings are similar to the facts, as here, where lead and copper are essentially components of the water system at Summit Elementary, which have degraded over time, thereby allegedly rendering the lead and copper bioavailable.
Specifically, in Lititz Mut. Ins. Co. v. Steeley, 785 A.2d 975 (Pa. 2001), the only case involving allegations of injury due to lead-based house paint, the Supreme Court of Pennsylvania found that lead-based house paint, and the means by which the lead in that paint became bioavailable for human exposure, did not fall within the scope of the pollution exclusion language — i.e., household lead exposure does not result from the "discharge, dispersal, seepage, migration, release or escape" of lead. Accord Fayette Cty. Hous. Auth. v. Hos. & Redevelopment Ins. Exch., 771 A.2d 11 (Pa. 2001).
In Steely, the Court surmised that "the critical question is whether the process by which lead-based paint becomes available for human ingestion/inhalation unambiguously involves a type of motion that can be characterized as a discharge, dispersal, release, or escape." Steely, 785 A.2d at 981. Critically, the Court recognized that it was not capable of answering that question from the four corners of the complaint, instead requiring expert analysis of the mechanisms that render lead bioavailable for inhalation.
In order to determine the applicability of the pollution exclusion language, the Court specifically considered "whether the exclusion's requirement of a `discharge, dispersal, release or escape' of pollutants is . . ., with reference to the process by which lead-based paint becomes available for ingestion and inhalation, unambiguous." Id. at 980-81. "[I]n determining whether there has been a discharge, dispersal, release, or escape, it is necessary to assess the specific form of movement in question." Id. at 981.
In Steely, the Court considered affidavits which were submitted in support of summary judgment by a toxicologist, and lead paint expert. The Court observed that the experts explained that the lead exposure was the result of a continuous and slow rate of degradation, which was at odds with the "natural, plain and ordinary meaning of the exclusionary language." Id. The Court reasoned that "[o]ne would not ordinarily describe the continual, imperceptible, and inevitable deterioration of paint that has been applied to the interior surface of a residence as a discharge (`a flowing or issuing out'), a release (`the act or an instance of liberating or freeing'), or an escape (`an act or instance of escaping')." Id. at 982, citing Madison, 735 A.2d at 108. The Court observed that "such deterioration could be understood to constitute a `dispersal,' the definition of which (`the process . . . of . . . spreading . . . from one place to another,') may imply a gradualism not characteristic of the other terms." Id. However, nonetheless, the Court concluded that "[a]ny such inconsistency in meaning simply indicates . . . that the exclusionary language does not clearly include or exclude the physical process here at issue, but is, as to that process, ambiguous." Id. Because the Court found an ambiguity, the Supreme Court of Pennsylvania held that such ambiguity "requires that the language be interpreted in favor of the insured" and "that the pollution exclusion clause does not preclude coverage for the injuries alleged to have occurred in this case." Id.
Later, in Mistick, Inc. v. Nw. Nat. Cas. Co., 806 A.2d 39 (Pa. Super. Ct. 2002), the Superior Court of Pennsylvania, addressing the lessons of Steely, stated:
Mistick, 806 A.2d at 44.
In order to undertake a determination relative to the particular movement of lead and copper alleged in the Tait litigation, this Court would be required to analyze expert reports and/or affidavits. Such an analysis would require this Court to step outside of the four corners of the operative Complaint, which would be an improper exercise at this juncture. The Supreme Court of Pennsylvania emphasizes that an insurer's duty to defend is broader that its duty to indemnify and that the duty to defend is a distinct obligation, separate and apart from the insurer's duty to provide coverage. Post, 691 F.3d at 517. As those set forth in Steely and Mistick, the pollution exclusion at issue here is ambiguous.
Lead Exclusion Does Not Preclude Coverage of Claims of Injury Due to Copper
The Insurers argue that the exclusionary language in the Policies preclude coverage for "Bodily injury", . . . arising, in whole or in part, either directly or indirectly out of the . . . inhalation, ingestion, absorption, use or existence of, exposure to, or contact with lead or lead contained in goods, products or materials; . . ."
The Insurers acknowledge that, while there are no reported decisions in Pennsylvania interpreting or applying a lead exclusion, "case law applying policy exclusions with `in whole or in part' language overwhelmingly holds that coverage is barred if any part of the alleged damage resulted from an excluded cause. . . ."
This Court finds that the language of the exclusion in Comprehensive Microfilm is distinguishable from the present case because the language of the exclusions at issue here does not specifically state in the same clause that coverage is excluded for a "suit seeking damages arising out of, in whole or in part, lead"; rather, the exclusionary language relates to "bodily injury . . . arising, in whole or in part, . . . on lead."
Although Plaintiffs in the Tait litigation have pled injuries resulting from lead and/or copper, there has been no finding at this juncture, nor should there be such a finding without a jury trial, that the lead, in fact, caused, in whole or in part, Plaintiffs' bodily injuries.
The Insureds instead point out the observations of the Superior Court of Pennsylvania, in Penn-Am. Ins. Co. v. Tomei, 2016 WL 2990093 (Pa. Super. Ct. May 24, 2016), that "[t]he phrase `arising out of' in insurance contracts has generally been interpreted as `causally connected with' and is construed against the insurer as the drafter of the insurance agreement." Tomei, 2016 WL 2990093, at *4-5. The Insureds go on to emphasize that "Pennsylvania's law requires that exclusions be strictly and narrowly interpreted to favor coverage for the insured." Gen. Refractories Co. v. First State Ins. Co., 94 F.Supp.3d 649, 659 (E.D. Pa. 2015) (citations omitted); see also Mut. Benefit Ins. Co. v. Politsopoulos, 115 A.3d 844, 852 (Pa. 2015) ("policy exclusions are to be construed narrowly in favor of coverage"). The requirement that exclusions be narrowly construed extends to the phrase "arising out of" as used in an exclusionary provision.
The Insureds posit that authority exists for the proposition that where the phrase "arising out of" appears in an inclusionary clause, it means causally connected with. However, in an exclusionary clause, reading the exclusion strictly against the insurer, it means proximately caused by — an interpretation "consistent with the general rule that insurance policies are read to effect the policy's dominant purpose of indemnity or payment to the insured." Petrosky v. Allstate Fire & Cas. Ins. Co., 141 F.Supp.3d 376, 388 (E.D. Pa. 2015), (quoting Eichelberger v. Warner, 434 A.2d 747, 752 (Pa. Super. Ct. 1981), citing Manufacturers Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A.2d 571, 573 (Pa. 1961)). See also, General Refractories Company v. First State Insurance Co., 855 F.3d 152, 159-60 (3d Cir. 2017) (noting that the phrase "arising out of" requires "but for" causation).
Therefore, the lead exclusions in the Netherlands and Peerless Policies must be narrowly construed in favor of coverage and must be read to exclude coverage for a claim proximately caused by lead. To reiterate, we are far from the juncture of determining "but for" cause and/or proximate cause.
Based upon a reading of the four corners of the Second Amended Complaint filed in the Tait litigation, and comparing these facts as alleged to the four corners of the Policies, and taking the facts in the Second Amended Complaint as true, there are allegations of potential injury from copper that are not dependent on lead injury nor stem from lead injury. Copper is potentially a separate and distinct cause of injury, and the Second Amended Complaint further cites to separate studies setting forth effects of lead and of copper in drinking water on children. See
The Court will not countenance the Insurers' invitation to turn Pennsylvania law relative to the duty to defend on its head, so as to allow the potential exclusion of a single type of claim to relieve them of their duty to defend, when the law actually requires a defense when a single potentially covered claim is alleged.
Moreover, this Court declines the Insurers' request to look to the "clear focus of the original Complaint" (
In conclusion, the Court is mindful that an insurer is obligated to defend its insured if the factual allegations of the complaint on its face encompass an injury that is actually or potentially within the scope of the policy.American and Foreign Ins. Co. v. Jerry's Sport Center, Inc., 606 Pa. 584, 596 (Pa. 2010). "As long as the complaint `might or might not' fall within the policy's coverage, the insurance company is obliged to defend." Id. at 609 (citations omitted).
For these reasons, the Court will GRANT the Insureds' Motions for Judgment on the Pleadings (docs. 21 and 22), and DENY the Insurers' (