Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

CONTINENTAL INS. CO. v. BEECHAM

August 31, 1993

THE CONTINENTAL INSURANCE COMPANY, Plaintiff,
v.
BEECHAM, INC., Defendant.



The opinion of the court was delivered by: MARYANNE TRUMP BARRY

 BEFORE: HON. MARYANNE TRUMP BARRY, U.S.D.J.

 I. INTRODUCTION

 This action involves an insurance coverage dispute between Beecham, Inc. ("Beecham") and its insurer, the Continental Insurance Company ("Continental"), with respect to the environmental contamination of a facility in Myerstown, Pennsylvania previously owned by Beecham. Presently before the court are cross-motions for summary judgment for declaratory relief concerning the rights and liabilities under the contracts of insurance entered into by the parties, which motions, almost by definition, raise a plethora of issues.

 II. Factual and Procedural History

 A. The Myerstown Site Prior to Beecham's Ownership

 The site of the contamination at issue is a 22 acre plant in Myerstown, Pennsylvania owned by Whitmoyer Laboratories, Inc. ("Whitmoyer"), an animal pharmaceutical company founded in 1934. Final Pretrial Order Stipulation of Facts (hereinafter "Stip.") P 3; Plaintiff's Appendix in Support of Motion for Summary Judgment (hereinafter "Pl. App.") 2 at 1-4; Pl. App. 3 at B10361. In 1957, Whitmoyer began producing arsenic-based feed additives for animals. Pl. App. 2 at 1-4; Defendant's Appendix in Support of Motion for Summary Judgment (hereinafter "Def. App.") 2 at 1-4. In 1964, Whitmoyer was purchased by and became a wholly-owned subsidiary of Rohm & Haas Company. Stip. P 8.

 Shortly after Rohm & Haas acquired Whitmoyer, arsenic pollution was discovered in the soil and groundwater at the Myerstown plant. Pl. App. 2 at 1-6; Pl. App. 5 at R00002323; Def. App. 2 at 1-6; Def. App. 3 at R00368. Prior to 1964, Whitmoyer had loaded arsenic waste materials from the production of arsenical onto tanker trucks and transported the materials to an on-site lagoon where they were dumped. Stip. P 6. In addition, as of 1963 the site had a sludge pile approximately 25 feet in diameter consisting of DDAA. Stip. P 7.

 Following the discovery of arsenic pollution, and under the guidance of Pennsylvania's Department of Health, Rohm & Haas began a remediation effort at the plant. Stip. P 16. The remediation plan included, among other things, the termination of wastewater disposal in the lagoon and the excavation of lagoon sludges, groundwater pumping and treatment, and the provision of bottled water to the nearby residents with contaminated wells. Pl. App. 2 at 1-6; Def. App. 2 at 1-6. Rohm & Haas constructed an internal dike around the building in which arsenic production took place and placed sealing mechanisms on storm drains which flowed into Tulpehocken Creek so that they could be closed in the event of a spill. Dengler Dep., *fn1" Def. App. 4 at 31; Stip. PP 5, 18. It constructed, as well, a concrete "vault," approximately 123 feet long, 83 feet wide, and 12 feet deep into which arsenic contaminated soil, the calcium arsenate from the lagoon, and other materials were placed, sealed, and "entombed." Pl. App. 2 at 1-6; Def. App. 2 at 1-6; Dengler Dep., Pl. App. 6 and Def. App. 4 at 38; Pl. App. 9 at B10072; Stip. P 19. Monitoring and treatment wells were installed around the plant to facilitate groundwater testing and analysis and to prevent the flow of contaminants off the property. Def. App. 5 at 2; Croesus Dep., Pl. App. 8 at 334; Pl. App. 9 at B10072. The material in the sludge pile was drummed and stored in a barn near the plant property to be sold for product reclamation. Dengler Dep., Def. App. 4 at 39, 45. In 1976 or 1977, additional arsenic waste was consolidated from all the lagoons into certain "consolidated" lagoons. Def. App. 2 at 1-6; Pl. App. 2 at 1-6; Pl. App. 7 at B10337-B10338. All of the lagoons were later covered with topsoil and seeded with grass. Id.; Stip. P 24.

 B. Beecham's Acquisition of Whitmoyer from Rohm & Haas

 On March 31, 1978, Beecham purchased the stock of Whitmoyer from Rohm & Haas. Certification of Albert J. White, dated February 28, 1982 (hereinafter "White Cert.") P 2. Beecham's purchase of this stock was part of a larger transaction in which Beecham acquired various assets of Rohm & Haas located around the world. Of the total purchase price of $ 18.5 million, $ 13.1 million was attributable to the purchase of Whitmoyer's stock. See Certification of Albert J. White, dated February 28, 1992, Exh. A and Pl. App. 20 (hereinafter "Purchase Agreement") at B10602. As part of the Purchase Agreement, Rohm & Haas warranted that the property sold was in good condition and in compliance with all federal, state, and local laws. White Cert., Exh. A., at 32, 36. Continental points out that this warranty was general in nature and, in any event, could not have taken into consideration the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601 et seq., which was not enacted until several years after the acquisition.

 Prior to the Whitmoyer acquisition, Beecham representatives Fred Bledsoe and Robert McEntee *fn2" were taken on tours of the Myerstown plant and facilities. McEntee Dep., Pl. App. 12 at 31; Bledsoe Dep., Pl. App. 13 at 36; Ambrogi Dep., Pl. App. 4 at 117-120; King Dep., Pl. App. 16 at 22. These tours consisted of walking around the plant site to each of the production areas. King Dep., Pl. App. 16 at 24. Lloyd Croesus, Whitmoyer's Safety and Environmental Manager, testified that the subject of arsenic contamination at the plant was raised during a tour with Beecham representatives and that those representatives were informed not only that contamination had occurred prior to Rohm & Haas' purchase of the plant but that there was still some groundwater and soil arsenic contamination. Croesus Dep., Pl. App. 8 at 118-19. In addition, Whitmoyer's President, William Ambrogi, recalled discussing the history of the contamination problems at the plant "to convince [Beecham and Bledsoe in particular] that . . . we were convinced that the problem was solved." Ambrogi Dep., Pl. App. 4 at 117. Continental also cites to a document entitled "Subjects for Discussion with R & H" which lists as a topic "Identity of Current and Potential EPA Problems." Pl. App. 18 at B10483.

 Beecham attacks the cited portion of Croesus' testimony because he did not specify to whom at Beecham he spoke concerning the Myerstown facility's history of contamination. *fn3" Croesus Dep., Pl. App. 8 at 118-19. Moreover, all four Beecham employees who were substantially involved in the Whitmoyer acquisition, Bledsoe, McEntee, General Counsel and Secretary Albert White, and Assistant Insurance Manager Paul Pfeffer, have denied that they were told about the arsenic contamination or the remediation efforts undertaken by Rohm & Haas at the Myerstown plant. See Certification of Fred Bledsoe, dated March 25, 1992, PP 3-4; Certification of Robert McEntee, dated March 25, 1992, PP 2-3; Certification of Albert J. White, Esq., dated March 25, 1992, P 5; Certification of Paul Pfeffer, dated March 31, 1992, P 4.

 Beecham also notes that the annual reports of Rohm & Haas for 1976 and 1977 disclose what they term as "less extensive" environmental efforts but fail to make mention of those efforts undertaken at the Myerstown facility. See Def. App. 7 at B04656B; Def. App. 8 at B04700B. Beecham asserts that the deposition testimony of William Ambrogi and Frantz Dengler supports its position that the absence of any reference to remediation efforts at the Myerstown plant is attributable to Rohm & Haas' belief that remediation had been successfully completed. Ambrogi Dep., Def. App. 9 at 45-47; Dengler Dep., Def. App. 4 at 74. Continental, on the other hand, argues that the testimony cited by Beecham relates only to the groundwater recovery program and that, even then, the program was terminated because it was seen as too costly and futile. Pl. Opp. Br. at 8.

 Continental claims that, prior to the Whitmoyer acquisition, Beecham had knowledge of the bottled water program instituted by Rohm & Haas. Specifically, Continental points out that the Purchase Agreement refers to, under "Miscellaneous Agreements and Commitments," the "verbal commitment of Whitmoyer Laboratories, Inc. to supply bottled water to persons near the Myerstown plant whose wells have been contaminated by the presence of arsanilic acid." Purchase Agreement at 16323. Lloyd Croesus testified that he received a request from Beecham personnel for a list of those persons to whom Whitmoyer was supplying bottled water as a result of arsenic contaminated wells. Croesus Dep., Pl. App. at 125. Beecham does not dispute the reference to these verbal commitments in the Purchase Agreement, although White, Beecham's General Counsel, claims that he did not see a copy of the Purchase Agreement with a reference to bottled water prior to signing the agreement. White admitted, however, that notes on the two pages following the reference to bottled water were in his handwriting. White Dep., Pl. App. 15 at 78-81.

 Beecham does dispute the import to be drawn from Continental's claim that Beecham nearly scuttled the Whitmoyer purchase as a result of certain ecological problems. While it is undisputed that a September 20, 1977 letter from Beecham's Bledsoe to Ambrogi indicates that Beecham was not interested in acquiring the Whitmoyer Laboratories' part of Rohm & Haas' Animal Health Business, in part because it "believed that potential ecological problems will arise," Beecham claims that Continental's use of this statement to support its argument that Beecham was aware of the arsenic contamination at the Myerstown facility is disingenuous. Pl. App. 22 at B10464. Indeed, the recipient of Bledsoe's letter, Ambrogi, testified that the reference to "ecological problems" in the sentence in question was limited to a tank full of waste in Paulsboro, New Jersey. Ambrogi Dep., Def. App. 41 at 123. Beecham urges that the exact opposite inference must be drawn from the statement concerning potential ecological problems: that Beecham's refusal to complete a deal which included the purchase of a waste tank it considered to be an ecological problem makes Continental's argument that Beecham bought Whitmoyer with knowledge of the arsenic contamination incredible. Beecham further notes that as a result of this concern, the Paulsboro waste tank was omitted from the Purchase Agreement. Purchase Agreement at B10601.

 C. The Operation of Whitmoyer under Beecham

 Continental asserts that the arsenic contamination problem at the Myerstown plant was evident throughout Beecham's ownership of Whitmoyer. Throughout that period, i.e. from 1978 to 1982, Whitmoyer continued to supply bottled water to nearby residents whose wells were contaminated. Pl. Rule 12(G) Statement P 37; Def. Opp. Rule 12(G) Statement P 37. Lloyd Croesus testified that he saw cracks in the concrete vault and that he had a conversation with Harold Huffman about the possibility of setting up a monitoring system to determine if waste material was leaking out of the vault. Croesus Dep., Pl. App. 8 at 330. Moreover, Whitmoyer employees knew that arsenic was infiltrating the sewer system, suspecting that it was entering the system through cooling tower holding tanks, production facilities, and sink and shower rooms. Pl. App. 29 at EP0000049-0000051.

 Beecham admits that in July, 1978, the PADER threatened to issue an injunction suspending the Myerstown plant's operations due to excessive arsenic emissions into the air. Pl. App. 37 at B10943. While no injunction was ever issued, Whitmoyer was fined $ 6,500 in October, 1978 for unauthorized modification of the arsenic waste evaporation system, failure to list all air contaminants, failure to operate the system in accordance with the operation permit, and operation of the system in a manner that caused air pollution. Stip. P 32; Pl. App. 38 at B10992-B10995. That same year Whitmoyer also settled a claim with an adjacent land owner concerning crop damage allegedly caused by arsenic pollution. Pl. App. 39 at B11015; Def. Opp. Rule 12(G) Statement P 45; Croesus Dep., Pl. App. 8 at 471-72. It is admitted, too, that in 1982 Whitmoyer was fined $ 3,200 for exceeding the permitted volume discharge level, although the parties dispute the significance of such a violation. Stip. P 34; Pl. Rule 12(G) Statement P 40; Def. Opp. Rule 12(G) Statement P 40.

 In 1979, Buckeye Pipeline Company uncovered some arsenical materials during an excavation to repair a pipeline. Pl. App. 31 at B12237-B12238. A dump of approximately forty feet by thirty feet by seven feet deep was discovered. Id. Two attorneys employed by Beecham, Robert Frawley and Larry Olon, visited the site and reviewed the situation. Id.; Frawley Dep., Pl. App. 32 at 27-30. In an effort to limit its liability from the toxic material that was not properly contained, Beecham authorized approximately $ 70,000 to clean up the area. Pl. App. 31 at B12237-B12238; Croesus Dep., Pl. App. 8 at 267. The Whitmoyer Operations Committee also considered whether to remove the waste stored in the concrete vault, opting not to do so. Pl. App. 35 at B05829B. Whitmoyer Operations Committee members Anthony Bott and Leroy Kauffman testified that this decision was based on the belief of the committee members that the concrete vault was adequately sealed. Bott Dep., Def. App. 39 at 38; Kauffman Dep., Def. App. 40 at 62.

 On May 4, 1982, Beecham sold Whitmoyer, with the exception of the Affiliated Laboratories division located in Illinois, to Stafford Laboratories, Inc. for $ 4 million. Pl. App. 42 at 2. In February, 1984, the United States Environmental Protection Agency ("EPA") found elevated levels of arsenic in the groundwater and sediment. The site was proposed for the National Priorities List of potentially hazardous waste sites, pursuant to CERCLA section 105(8)(B), 42 U.S.C. § 9605(8)(B), in October, 1984 and finalized on the list in June, 1986. Pl. App. 2 at 1-7; Def. App. 2 at 1-7. In April, 1986, Beecham was notified by the PADER that it was a potentially responsible party ("PRP") with respect to contamination at the Myerstown site. Def. App. 20. Shortly thereafter, Beecham notified Continental of its claim. Def. App. 20.

 D. Beecham's Contracts of Insurance with Continental

 Continental first issued Comprehensive General Liability ("CGL") policies to Beecham in 1976 and issued subsequent policies providing coverage for the years through 1985. Stip. P 38. In 1978, Whitmoyer was added as an additional insured under the CGL policies. Stip. P 41. Under the terms of these policies, Continental agreed to pay "all sums which the insured shall become legally obligated to pay as damages because of . . . property damage caused by an occurrence" during the policy period. An "occurrence" is defined as "an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the insured." The policies also contain a "pollution exclusion" clause which states that:

 
This insurance does not apply . . . (f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals or pollutants into or upon land, the atmosphere, or any water course or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

 Stip. P 38.

 The policies from 1977 to 1986, and the 1976 policy as of August 24, 1976, contain an endorsement entitled "Knowledge of Occurrence" which states that: "It is agreed that in the event of any occurrence written notice shall be given [sic] by or on behalf of the insured to the company or any of its authorized agents as soon as practicable after knowledge thereof by the insurance manager, any corporate attorney or officer of the corporation." Stip. P 39. In addition, the policies covering 1976 to 1986 contain an endorsement stating that: "It is agreed that failure of the named insured to disclose all hazards existing at the effective date of the policy shall not prejudice the insured with respect to the insurance afforded by this policy if such failure is not intentional." Stip. P 53.

 In connection with the policy in effect from April 1, 1977 to April 1, 1978, policy number L1416312, Continental issued a Retrospective Agreement according to which policy premiums were calculated. Stip. P 44. This document allowed Continental to impose retrospective premiums for losses covered by the subject policy. Stip. P 45.

 III. Choice of Law

 As an initial matter, the court must determine which state's substantive law is to be applied to the dispute concerning the interpretation of the contract of insurance between Continental and Beecham. Because this action was brought initially in the Middle District of Pennsylvania and transferred to this court pursuant to 28 U.S.C. § 1401(a), see Continental Ins. Co. v. Beecham, Inc., No. 87-1275 (M.D. Pa. February 25, 1988) (report and recommendation of the magistrate judge) (Def. App. 22); Continental Ins. Co. v. Beecham, Inc., No. 87-1275 (M.D. Pa. June 24, 1988) (memorandum opinion and order of the district judge adopting the report and recommendation of the magistrate judge) (Def. App. 23), the court must apply the choice of law rules that the transferor court, the Middle District of Pennsylvania, would have applied. See Ferens v. John Deere Co., 494 U.S. 516, 531, 108 L. Ed. 2d 443, 110 S. Ct. 1274 (1990); Van Dusen v. Barrack, 376 U.S. 612, 639, 11 L. Ed. 2d 945, 84 S. Ct. 805 (1964). Because the Middle District of Pennsylvania would have been bound, as are all federal courts sitting in diversity, to apply the choice of law rules of the state in which it is located, this court must apply the choice of law rules of Pennsylvania. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); Shuder v. McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988). Continental argues in favor of the application of Pennsylvania substantive law, while Beecham contends that New Jersey law should govern.

 In Griffith v. United Air Lines, Inc., 416 Pa. 1, 21, 203 A.2d 796 (1964), the Supreme Court of Pennsylvania abandoned its outmoded strict lex loci delicti rule "in favor of a more flexible rule which permits analysis of the policies and interests underlying the particular issue before the court." See also Melville v. American Home Assur. Co., 584 F.2d 1306, 1311 (3d Cir. 1978) (holding that Pennsylvania would extend the Griffith approach to contract actions); United Brass Works, Inc. v. American Guarantee and Liability Ins. Co., 819 F. Supp. 465 (W.D. Pa. June 22, 1992). Pennsylvania's current rule has been interpreted as encompassing both the significant contact analysis of the Restatement (Second) of Conflict of Laws and an analysis of the interests and policies asserted by each jurisdiction. Compagnie des Bauxites de Guinee v. Argonaut-Midwest Ins. Co., 880 F.2d 685, 689 (3d Cir. 1989). Thus, the court must "weigh the contacts on a qualitative scale according to their relation to the policies and interests underlying the issue." Shields v. Consolidated Rail Corp., 810 F.2d 397, 400 (3d Cir. 1987).

 Parenthetically, Beecham argues that the report and recommendation of the magistrate judge and the subsequent memorandum opinion of the district judge in the Middle District of Pennsylvania constitute law of the case as to the choice of law issue now before the court. This argument must be rejected out of hand. First of all, it is axiomatic that the doctrine of law of the case is binding only as to issues actually addressed and decided or decided by necessary implication. See Bridge v. U.S. Parole Comm'n, No. 92-3110, 1992 WL 349262, *5 (3d Cir. Dec. 1, 1992); Schultz v. Onan Corp., 737 F.2d 339, 345 (3d Cir. 1984); Todd & Co. v. Securities & Exchange Commission, 637 F.2d 154, 157 (3d Cir. 1980). The motion before the magistrate judge, and later the district judge, in the Middle District of Pennsylvania was a motion to transfer pursuant to 28 U.S.C. § 1404(a). While the substantive law which will be applied in an action is a factor for consideration in a § 1404(a) analysis, it is but one of a number of considerations to be weighed in what is, ultimately, a determination of whether private and public interests warrant the transfer of an action. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09, 91 L. Ed. 1055, 67 S. Ct. 839 (1947). The transferor court did not presume to decide the choice of law issue and the remarks of both the magistrate judge and the district judge reflect as much. Leksi, Inc. v. Federal Ins. Co., 736 F. Supp. 1331, 1333 (D.N.J. 1990) (another court's decision on a motion to transfer under section 1404(a) is not deemed an actual determination of what substantive law should apply); Continental Ins. Co. v. Beecham, Inc., No. 87-1275, slip op. at 8, 10 (M.D. Pa. June 24, 1988) (memorandum opinion and order of the district judge) ("the magistrate concluded based on a preliminary review of choice of law principles . . ." and "we need not determine the ultimate outcome of [the choice of law] issue at this stage of the proceedings"). Furthermore, the motion to transfer was made over four years ago on a record which was obviously not complete. Fairness and accuracy mandate that this court determine the choice of law issue de novo on the record before it.

 A. Contacts Analysis

 1. Restatement Section 193

 As part of Griffith's hybrid analysis, the court must consider the contacts with Pennsylvania and New Jersey. The court in Griffith looked for guidance in its assessment of relevant contacts to the Restatement (Second) of Conflict of Laws section 379(2) (hereinafter "Restatement"), which relates to tort actions. Accordingly, because this is a contract action, it is appropriate that this court look to those sections of the Restatement which apply to contract actions.

 Continental argues that section 193 should govern the contacts analysis here. That section, entitled "Contracts of Fire, Surety or Casualty Insurance," provides that the validity of such a contract is to be determined according to "the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles in § 6 to the transaction and the parties, in which event the local law of the other ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.