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Koppers Co. v. Aetna Casualty & Sur. Co.

ELR Citation: 27 ELR 20636
Nos. Nos. 95-3432, -3461, 98 F.3d 1440/(3d Cir., 10/28/1996) aff'd

The court affirms a district court decision that under Pennsylvania law a manufacturer is entitled to indemnification from its excess liability insurers for property damage resulting from environmental contamination at its manufacturing and disposal sites. The court first holds that the district court jury instruction that the excess liability policies could be triggered by a causative event taking place during the policy period or by the resulting property damage alone if the causative event occurred pre-policy was, even if erroneous, harmless error. The manufacturer introduced uncontroverted evidence that the property damage was continuous, progressive, and indivisible throughout the relevant policy periods and that the causes of the contamination existed at each site during each policy period. The court next holds that the Pennsylvania Supreme Court would place the burden of proving, as an affirmative defense, that the manufacturer expected or intended the property damage at issue on the insurer in this case. Although the excess liability policies do not mention fortuity, the court predicts that it is Pennsylvania's public policy not to enforce an insurance coverage contract providing coverage for a nonfortuitous loss. As with exclusions stated in an insurance policy, however, when an insurer relies on public policy to deny coverage of a claim, the insurer must bear the burden. The court further holds that the district court's fortuity instructions fairly conveyed to the jury that coverage is defeated if the insured expected or intended a harm of the same general type as the harm that occurred rather than the specific harm that occurred. The court next holds that the district court did not abuse its discretion by excluding the insurers' evidence of the manufacturer's failure to mitigate property damages. The insurers offered no evidence of what reasonable action the manufacturer might or ought to have taken, no evidence tending to show that any actions would have measurably reduced the harm, and thus, no evidence from which the jury could have determined how much damages could have been reduced by mitigation.

Turning to the damage award, the court holds that the district court improperly failed to reduce the judgment to account for the manufacturer's settlements with its other excess and primary insurers. The court holds that the Pennsylvania Supreme Court would extend its precedent on the allocation issue to cases involving environmental property damage claims, such that all insurers whose policies were triggered to cover an indivisible loss would be jointly and severally liable, up to policy limits, for the full amount of that loss. The policy at issue here obligated the excess insurers to indemnify the manufacturer for all sums that the manufacturer would be obligated to pay by reason of the liability for property damage; environmental property damage is a progressive harm that, as a practical matter, is indivisible; and because the entire injury is defined as one occurrence, a triggered policy must indemnify the manufacturer for all damages resulting from that injury. The court next holds that the Pennsylvania Supreme Court would adopt the apportioned share set-off rule and reduce the judgment against the excess insurers to account for the settling insurers' apportioned share of liability. The court further holds that settlement with the primary insurer functionally exhausts primary coverage and therefore triggers the excess policy—though by settling the manufacturer loses any right to coverage of the settlement amount and the primary policy's limits. Thus, the district court may be required to deduct from the total loss the combined limits of all settled primary policies. The court remands the decision to allow the district court to mold the verdict to take account of the settling insurers' apportioned shares of liability.

[A prior decision in this litigation is published at 24 ELR 21170.]

Counsel for Appellee
Joseph W. Montgomery III
Jones, Day, Reavis & Pogue
500 Grant St., 31st Fl., Pittsburgh PA 15219
(412) 391-3939

Counsel for Appellants
Larry R. Eaton
Blatt, Hammesfahr & Eaton
333 W. Wacker Dr., Ste. 1900, Chicago IL 60606
(312) 849-8000

Before: STAPLETON, COWEN, and SEITZ, Circuit Judges.