LUDWIG, District Judge.
All of the eleven defendants in this action again move for summary judgment (doc. no. 346 sealed).
Plaintiff General Refractories Company (GRC), a manufacturer and supplier of asbestos-containing products, sued its insurance carriers for a declaration of excess liability insurance coverage in some 33,000 underlying asbestos-related suits pending throughout the United States.
GRC opposes the motion. It asserts entitlement to an award of each defendant's share necessary to pay for the underlying settlements as well as GRC's defense costs and other declaratory judgment relief. According to GRC, each policy's insurance agreement encompasses the settlements it made in the underlying lawsuits.
Barry L. Katz, Esq., GRC's Rule 30(b)(6) representative, testified:
Katz dep., 1058:12-15, 1059:6-14, 1060:5-9, 1109:12-20, 1110:4-1111:6, 1111:17-21, 1222:25-1223:5, 1223:6-1224:25, LoCasale Aff., Ex. 12, doc. no. 346.
Pennsylvania substantive law, as the parties agree, governs this damages dispute. In an action based on diversity of citizenship, a federal court generally applies the damages law of the jurisdiction in
A federal court sitting in diversity must apply the law of the state that governs the issue to be decided. Mitchell Partners, L.P. v. Irex Corp., 656 F.3d 201, 203 (3d Cir.2011) (citing Klaxon, 313 U.S. at 496-97, 61 S.Ct. 1020). "In the absence of a definitive ruling by a state's highest court, we must predict how that court would rule if faced with the issue." Meyer, 648 F.3d at 164. For this purpose, "decisions of state intermediate appellate courts, of federal courts interpreting that state's law, and of other state supreme courts that have addressed the issue, as well as ... analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand" offer guidance. Id. (citations and internal quotation marks omitted). "`Although not dispositive, decisions of state intermediate appellate courts should be accorded significant weight in the absence of an indication that the highest state court would rule otherwise.'" Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 391 (3d Cir.2012) (quoting Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1373 n. 15 (3d Cir.1996)).
The question here is whether the conditional settlements entered into by GRC are permissible under Pennsylvania law. Because the Pennsylvania Supreme Court has not ruled on this issue, it is necessary to predict the conclusion it would reach in the event that it did so. The controlling case in this area, decided by our Court of Appeals, is Trustees of the Univ. of Pa. v. Lexington Ins. Co., 815 F.2d 890 (3d Cir.1987) (Becker, J., later C.J.). Judge Becker found Alfiero v. Berks Mut. Leasing Co., 347 Pa.Super. 86, 500 A.2d 169 (Pa.Super.Ct.1985), appeal denied (Sept. 9, 1986) "the most persuasive indication of the position of Pennsylvania law," predicting that Pennsylvania would uphold the validity of two-tiered conditional settlements when the insurer refused to defend against the plaintiff's suit, subject to the requirements of good faith and reasonableness. Trustees, 815 F.2d at 902. Our Court of Appeals repeated this prediction in Greater N.Y. Mut. Ins. Co. v. North River Ins. Co., 85 F.3d 1088, 1090, 1092 (3d Cir.1996) (Scirica, now C.J.) (a two-tiered conditional settlement between a plaintiff, an insured, and the insured's excess insurer, when the primary insurer refused to settle the plaintiff's claim). Judge Scirica: "Alfiero is the most persuasive statement of Pennsylvania law." Id. at 1092 n. 4.
The best indicators of Pennsylvania law on the subject today remain Alfiero, together
Defendants cite one Pennsylvania case: Dennis v. New Amsterdam Cas. Co., 216 Pa.Super. 320, 264 A.2d 436 (Pa.Super.Ct.1970). There, after the insurer refused coverage, the insured settled with plaintiff, agreeing to pay a relatively small sum and to sue the insurer to recover additional money. Recovery against the insurer would be the sole source for the balance of the settlement. Dennis affirmed the trial court's ruling that the insurer had no duty to indemnify its insured principally because the original suit involved workers' compensation, which was excluded under the policy. As relates to this action, Dennis added without elaboration that indemnification would be denied because "under the settlement agreement, [the insured] is not obligated to pay the same, this being a secondary and minor consideration." Id. at 439. Defendants contend that just as the insured in Dennis "was not obligated to pay" the balance of the settlement, GRC is under no legal obligation to fund its settlements. Id. When presented with a similar argument in Trustees, Judge Becker found the "language in Dennis ... was at most an alternative holding" that "was so offhand and self-consciously `minor' that we cannot consider it controlling authority." 815 F.2d at 901.
Defendants' damages theory of damages is based on Dennis — as well as on a line of similar cases from jurisdictions other than Pennsylvania that strictly construed the "legally obligated" policy language and refused recovery for the conditional upper tier.
Even assuming, as posited by defendants, the underlying settlement documents extinguished GRC's liability to the underlying, that would not produce a different outcome. Both Trustees and Alfiero hold that once an insurer repudiates its insurance contract, the insured is at liberty to negotiate a settlement that best protects the interests for which insurance was purchased. Trustees, 815 F.2d at 901; Alfiero, 500 A.2d at 172. The rationale of Alfiero as reiterated by Trustees permits the insured to protect itself from risks created by the insurer's refusal of coverage: "Prohibiting two-tiered settlements... may force insureds to turn down advantageous settlement offers."
On the other hand, two-tiered conditional settlements present recognized dangers — primarily that an insured will enter into an unreasonably high settlement. Trustees, 815 F.2d at 902; see also Greater N.Y., 85 F.3d at 1092 ("the prospect of self-dealing and self-serving testimony"). But nothing in Pennsylvania law suggests that such settlements should be completely prohibited to avoid these dangers. Our Court of Appeals and Pennsylvania courts have all held that the insurer is adequately protected by the requirements that the settlement be "reasonable" and "in good faith." See Trustees, 815 F.2d at 900, 901-02; Alfiero, 500 A.2d at 172. Trustees upheld recovery for the conditional top tier, finding that Pennsylvania courts would not view the danger that an insured will enter into a collusive or unreasonably high settlement as the principal policy concern. 815 F.2d at 901-02 (noting "this agreement exempts HUP completely from liability for part of the settlement").
No doubt Pennsylvania also would not recognize defendants' theory of damages for a further reason — it is not supported by Pennsylvania's rules for the interpretation of insurance contracts. Defendants: The phrase, "by reason of liability imposed by law for damages," should be interpreted as strictly a promise to indemnify that
What is more, Pennsylvania law allows an insured to assign to the injured plaintiff its rights against its insurer. Egger, 903 A.2d at 1229 (post-loss assignment of rights under excess liability policy changed only the identity of the party who was entitled to recover under the policy and was valid); Greater N.Y., 85 F.3d at 1092 n.5 (citing Gray v. Nationwide Ins. Co., 223 A.2d 8 (Pa. 1966)); Barr v. Gen. Acc. Group Ins. Co. of N. Am., 520 A.2d 485, 487 (Pa. Super Ct.), appeal denied, 536 A.2d 1327 (Pa. 1987) (applying Gray). See also Alfiero, 500 A.2d at 171 ("Alfiero [injured plaintiff] did not agree to release Berks [tortfeasor] from further liability. Its agreement was to seek recovery of an agreed debt from a specific asset, i.e., the contractual rights owed to Berks by CNA."); Resource, No. 02709 Apr. Term 2003, 77 Pa. D. & C. 4th 347, 2005 WL 503126, *1 (Pa. Com. Pl., Phila. Co. Feb. 25, 2005) (Sheppard, J.) (rejecting insurer's argument that settlement was invalid because insured had not paid any portion of the settlement amount, citing Gray and Barr); Annotation, "Assignment of insured's right to recover over against liability insurer for rejection of settlement offer," 12 A.L.R.3d 1158, § 4[a] (1967 & West Supp. 2012) (citing Gray for the proposition that an insured's assignment of its rights against its insurer before entry of judgment is valid). GRC's settlement agreements would be permissible in Pennsylvania as assignments of any damages recovered in this action.
Defendant's theory of damages does not take into account the important distinction long recognized by Pennsylvania courts between contracts of indemnity and contracts of insurance where an insurer denies coverage and refuses to defend:
Barr, 520 A.2d at 488. To apply principles for enforcement of a promise to indemnify is inappropriate here, where defendants have denied coverage and the only valuable asset the insured may have is its causes of action against its insurers. See Trustees, 815 F.2d at 900 (citing Am. Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805, 813 (Ind.Ct.App.1980) ("an insurer may not hide behind the `legally obligated to pay' language of the policy after it abandons its insured and the insured settles the claim against him by agreement")).
An order accompanies this memorandum.
AND NOW, this 26th day March, 2012, "Defendants' Motion for Summary Judgment Based on Plaintiff's Lack of Damages" (doc. no. 346 (sealed)) is denied.
On June 3, 2005, five of the insurance carriers moved to dismiss the action under Fed. R.Civ.P. 12(b)(7) for failure to join indispensable parties under Fed.R.Civ.P. 19 (doc. no. 149). Those defendants contended that the complaint had not named all of the excess and umbrella carriers that insured GRC from 1979 to 1986, and that the absent carriers were indispensable to the action. Some of the absent carriers were non-diverse. On September 27, 2005, this court dismissed the action, ruling that the unnamed insurers were necessary and indispensable parties under Rule 19. Gen. Refractories Co. v. First State Ins. Co., 234 F.R.D. 99, 100 (E.D.Pa.2005). On October 27, 2005, reconsideration of that ruling was denied. (Orders and mem., doc. nos. 158, 159, 166.) Defendants appealed both orders. On August 28, 2007, our Court of Appeals reversed the September 27, 2005 order and remanded this action. Gen. Refractories Co. v. First State Ins. Co., 500 F.3d 306 (3d Cir.2007).
On November 15, 2007, discovery was commenced. (Order, Nov. 13, 2007, doc. no. 191). After remand, on June 7, 2010, nearly six years after this litigation had been begun, fact discovery closed. (Orders, Jan. 21, 2010 and Feb. 19, 2008, doc. nos. 239, 199.) On April 29, 2011, expert discovery was closed. (Order, Mar. 17, 2011, doc. no. 303).
On August 1, 2011, defendants moved for summary judgment, contending that the action should be dismissed with prejudice because GRC lacks any insured damages (doc. no. 346 (sealed)). GRC opposed the motion (doc. no. 369 (sealed)), and defendants replied (doc. no. 400 (sealed)). By November 15, 2011, all briefs were submitted.
"No recourse" is defined: "The lack of means by which to obtain reimbursement from, or a judgment against, a person or entity." Black's Law Dictionary (9th ed.2009).