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Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co.

Citation: 29 ELR 21177
No. Nos. 97-5735, -5736, 177 F.3d 210/(3d Cir., 05/25/1999) Reversed and remanded

The court reverses and remands a district court's allocation of insurance coverage costs between an insured and its excess insurers for soil, groundwater, and wetlands contamination at the insured's tank truck terminal. The court first holds that the district court had subject matter jurisdiction over the suit notwithstanding a previous declaratory judgment action brought by an underwriter of the excess insurance company in which a court held that the citizenship of all under-writers had to be taken into account in determining diversity jurisdiction. Although the citizenship of all underwriters were not taken into account in this case, a stipulation between the parties providing for the district court's jurisdiction did not place before that court any of the underwriters not named in the amended complaint, and the judgment of the district court is not directly enforceable by or against them.

The court next holds that the district court erred by precluding the excess insurers from rebutting the presumption that government-mandated remedial investigation/feasibility study (RI/FS) costs are indemnity costs rather than defense costs. A party disadvantaged by the presumption that the costs associated with a government-mandated RI/FS are indemnity costs is entitled to rebut that presumption. Here, the excess insurance policies carry only a duty to indemnify and not a corresponding duty to defend, thus, the excess insurers would necessarily benefit from a partial allocation of the RI/FS costs to defense costs. On remand, therefore, the district court will have the discretion to determine whether the parties should have the opportunity to supplement the record now that the presumption has been held to be rebuttable by the excess insurers. In addition, if, on remand, the district court determines that the excess insurers have sufficiently rebutted the presumption, it must allocate the past and future costs associated with the government-mandated RI/FS between defense and indemnity costs.

The court then holds that the excess insurers are entitled to a credit of $ 11.055 million, even though the insured alleges that it received only $ 5,226,720 for its claims against the primary insurer regarding coverage at the tank truck terminal. An excess insurer is entitled to a credit, not based on the primary insurer's settlement, but based on the full amount of the primary insurer's coverage before it is required to pay under the excess policies. The court further holds that where, as here, the primary and excess policies cover claims asserted against the insured based on occurrence wherever they happen, the excess insurers are entitled to a credit equal to the total per-occurrence limits in the first suit to go to judgment. Even if the primary insurer's policies contained aggregate limits, the simplest and most straightforward approach is to extend the full credit amount to the excess insurers initially, rather than accepting the insured's subjective allocation of this amount to the various contamination sites covered by the settlement. The court then holds that the excess insurers in a particular year should only begin covering the insured's indemnity costs associated with the tank truck terminal when the total costs allocated to that particular year exceed the primary insurer's policy limits for that year. On remand, therefore, the district court should allocate the $ 11.055 million settlement credit according to the primary insurer's policy limits for each year.

The court then holds that if insurance was not available to the insured to cover its pollution damages to the soil and wetlands during those periods that pollution exclusion clauses applied, it should not be required to absorb part of its indemnity costs related to those two media. If, however, insurance was available and the insured chose not to purchase it, then the insured should be required to shoulder those costs. The court also holds that under New Jersey law, the insurers should bear the burden of proving that insurance coverage was available.

[Prior decisions in this litigation are published at 24 ELR 20410 and 27 ELR 20083.]

Counsel for Appellant
John P. Dean
Willkie, Farr & Gallagher
Three Lafayette Center
1155 21st St. NW, 6th Fl., Washington DC 20036
(202) 328-8000

Counsel for Appellee
Henry Lee
Mendes & Mount
750 7th Ave., New York NY 10019
(212) 261-8000

Before Roth and Longobardi,* JJ.